Overview of DuPont Analysis

1--1 Net profit __

I-t Net profit

margin
t-- Total
expenses Net Sales --

+
I
I Net sales I Asset
x
Financial
= Return on
Net Worth
Accounts
receivable

n Total current
assets
+
11
r--
Total
assets


__
turnover leverage

Other current
Fixed
l-assets I assets
Guide to calculation of financial ratios
Asset uitilization
ProfitabiHty ratios: Formula Formula
ratios:

Net income Net sales

Net margin (return on
sales) Net sales Total asset 'turnover Total assets

Gross margin Net sales

Gross margin (%) Net sales Fixed asset turnover .Fixed assets

Operating income COGS

Operating margin (%) Inventory turnover Inventory
Net sales

365
Days cost of sales in
inventory Inventory turnover
G,uide to calculation of tinanclal ratios
Asset utilization Liquidity ratios: Formula
Formula
ratios (continued):
Current assets (CA)
Net sales Current ratio Current liabilities (CL)
Accounts receivable
turnover Accounts receivable
Cash,+MS+A/R
Add test (quick ratio)
Current liabilities

Days of sales in Accounts receivable

accounts receivable Sales per day Leverage ratios: Formula

Assets
Assets/equity
Accounts payab:le Owner's equity
Days cost of sales in
payables COGS per day
Total liabilities to Total debt
assets Total assets

Other: Return on Net income

capital Total assets - CL
 Impact of financial leverage on key ratios

Company A B

Total Assets 1,000 1,000

Current Assets 500 500
Current Liabilities 500 500
Debt 0 300
Equity 500 200

Sales 2,000 2,000

PBIT 200 200
Interest@15% 0 30
PBT 200 170
Tax@20% 40 34
PAT 160 136

RoA 16% 13.6%

RoE 32% 68%

Asset Turnover (S/A) 2.0 2.0

Financial Leverage (AlE) 2.0 5.0

Companies A and B have the same sales and operating profit,

but very different leverage (A has no debt, B has high debt).

DuPont analysis shows this in terms of RoA (higher for A, since

there is no interest) and RoE (higher for B, since the equity is a
much smaller percentage of the Equity plus Liabilities total).