D076 - Module 7 - DuPont Framework

D076 - Module 7 - DuPont Framework
DuPont Dairy Farm - ✔✔* ROA > Loan interest rates is competitive

* ROA = Net Income / Total Assets

* Leverage Multiplier = Total Assets / Owner Equity

* Taking on additional loans would change Total Assets but keep Owner Equity same

-- Allows expansion



DuPont Decomposition Components - ✔✔* Net Profit Margin

* Total Asset Turnover

* Leverage Multiplier



DuPont Equation - ✔✔* Return on Equity is a function of:

-- Operating efficiency

-- Asset efficiency

-- Financing policy

* Decomposition of Return on Equity



DuPont Equation Purpose - ✔✔* Return on all investors measured by company's profitability and asset
usage efficiency

* Effect of debt appears only of ROE



DuPont Framework - ✔✔* Decomposes Return on Equity by analyzing which activities contribute to
ROE changes



DuPont Leverage Multiplier - ✔✔* Ratio lower than industry norm indicated company is more
conservatively financed