DuPont Analysis

DuPont Analysis

DuPont analysis is a relatively quick and effective way to analyze the overall financial health of a firm. This week you will be using the 3-step DuPont model to analyze the financial health of a firm. Go the link that follows and study the 3-step DuPont model.

In the link you see that the return on equity (ROE) can be broken down into a 3-step DuPont model of ROE = Net profit margin (NPM) x Asset turnover (AT) x Equity multiplier (EM). NPM is telling us how well the manager did at controlling expenses; AT is telling us how efficiently the assets are being used by the firm, and EM is telling us how reliant the firm is on debt financing; debt reliance increases financial leverage (magnifying ROE) but also increases financial risk.

Go to and choose a company. Enter the company name in the search box on the top and click on “Search” near the top of page. Once you have the company overview page open, you will see a menu of specific information below the company name; click on “Financials”. Open the firm’s Income Statement and its Balance Sheet. You should see 3 years of data in almost all cases. If you do not, choose another firm. The dates of the statements will vary by company since companies may or may not have a fiscal year end of December 31.

Please compute your chosen firm’s 3-step Dupont Model equation, reporting numerators and denominators of all 4 ratios (ROE, NPM, AT, and EM) for all 3 years reported. Discuss the economic meaning of the trends revealed over the 3-year period. To have a complete discussion, you should discuss trends in each the NPM, AT and EM and what those trends mean in economic terms.

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