Question

Explain the DuPont identity. How is it used in finance? Locate the financial statements for two...

Explain the DuPont identity. How is it used in finance? Locate the financial statements for two firms in the same industry. Calculate all four terms of the DuPont identity, and present the results but do not analyze them.

PLEASE DO NOT POST PICTURES. WRITE IR DOWN. THANK YOU.

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Answer #1

As per the Du Pont Identity,

ROE= Profit Margin* Total asset turnover * Equity multiplier

= (Net Income/Revenues) * (Revenues/Total Assets) * (Total Assets/ Shareholders' Equity)

It helps the managers to understand what is driving the ROE and pinpoints the exact determinant of ROE. It helps the management to understand why the company is weak or strong.

APPLE INC- 30 Sep 2017- Source:NASDAQ

ROE= (48,351,000/229,234,000) * (229,234,000/ 375,319,000) * (375,319,000/134,047,000)

=48,351,000/ 134,047,000

=36.07%

HP Enterprise Company- 31/10-2017-Source-NASDAQ

ROE= (344000 /28,871,000)* (28,871,000/61406000) * (61406000/23466000)

=1.47%

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