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