FIN2601
Assignment 2 Semester 2 2026
Unique number: 796042
Due date: 10 September 2026
QUESTION 1
1.1 Du Pont system of financial analysis
The Du Pont system combines important financial ratios so that management can
see how profitability, asset use and financial leverage work together when
measuring business performance. Instead of looking at return on assets and return
on equity as isolated percentages, the method separates them into the main factors
that cause the final result. This makes it easier to identify whether performance is
being driven by profit margins, the efficient use of assets or the use of debt financing
(FIN2601, 2017:10).
a) Return on assets
Return on assets is decomposed into the net profit margin and total asset turnover.
, QUESTION 1
1.1 Du Pont system of financial analysis
The Du Pont system combines important financial ratios so that management can
see how profitability, asset use and financial leverage work together when measuring
business performance. Instead of looking at return on assets and return on equity as
isolated percentages, the method separates them into the main factors that cause
the final result. This makes it easier to identify whether performance is being driven
by profit margins, the efficient use of assets or the use of debt financing (FIN2601,
2017:10).
a) Return on assets
Return on assets is decomposed into the net profit margin and total asset turnover.
The relationship is shown as follows:
ROA = Net profit margin × Total asset turnover
This relationship shows that a company can improve its return on assets by
increasing the profit earned from each rand of sales, using its assets more efficiently
to generate sales, or improving both areas (FIN2601, 2017:10).
b) Return on equity
Return on equity extends the Du Pont relationship by including the financial leverage
multiplier. The relationship is:
ROE = Net profit margin × Total asset turnover × Financial leverage
multiplier
The financial leverage multiplier reflects the effect of financing on shareholder
returns, which means that a higher use of debt can raise return on equity when the
return generated from assets remains positive (FIN2601, 2017:10).
1.2 Total asset turnover
Given:
Profit margin = 7%
ROA = 25.2%
Assignment 2 Semester 2 2026
Unique number: 796042
Due date: 10 September 2026
QUESTION 1
1.1 Du Pont system of financial analysis
The Du Pont system combines important financial ratios so that management can
see how profitability, asset use and financial leverage work together when
measuring business performance. Instead of looking at return on assets and return
on equity as isolated percentages, the method separates them into the main factors
that cause the final result. This makes it easier to identify whether performance is
being driven by profit margins, the efficient use of assets or the use of debt financing
(FIN2601, 2017:10).
a) Return on assets
Return on assets is decomposed into the net profit margin and total asset turnover.
, QUESTION 1
1.1 Du Pont system of financial analysis
The Du Pont system combines important financial ratios so that management can
see how profitability, asset use and financial leverage work together when measuring
business performance. Instead of looking at return on assets and return on equity as
isolated percentages, the method separates them into the main factors that cause
the final result. This makes it easier to identify whether performance is being driven
by profit margins, the efficient use of assets or the use of debt financing (FIN2601,
2017:10).
a) Return on assets
Return on assets is decomposed into the net profit margin and total asset turnover.
The relationship is shown as follows:
ROA = Net profit margin × Total asset turnover
This relationship shows that a company can improve its return on assets by
increasing the profit earned from each rand of sales, using its assets more efficiently
to generate sales, or improving both areas (FIN2601, 2017:10).
b) Return on equity
Return on equity extends the Du Pont relationship by including the financial leverage
multiplier. The relationship is:
ROE = Net profit margin × Total asset turnover × Financial leverage
multiplier
The financial leverage multiplier reflects the effect of financing on shareholder
returns, which means that a higher use of debt can raise return on equity when the
return generated from assets remains positive (FIN2601, 2017:10).
1.2 Total asset turnover
Given:
Profit margin = 7%
ROA = 25.2%
