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IV: Dupont Analysis

The Dupont analysis also called the Dupont model is a financial ratio based on
the return on equity ratio that is used to analyze a company’s ability to increase its
return on equity. In other words, this model breaks down the return on equity ratio
to explain how companies can increase their return for investors.
The Dupont analysis looks at three main components of the ROE ratio.
 Profit Margin
 Total Asset Turnover
 Financial Leverage

profit
margin

total
asset
turnover ROE
financial
leverage

The equation for the DuPont model is as follows:


ROE = NET PROFIT MARGIN + TOTAL ASSET TURNOVER + EQUITY MULTIPLIER

We can also represent these components as ratios:


ROE =NET INCOME X SALES X TOTAL ASSETS
SALES TOTAL ASSETS COMMON EQUITY
year ROE Profit margin Total asset Equity
(%) turnover(time) multiplier
2016 41.06% 13.34% 1.341223512
2017 40.87% 14.37% 2.23 1.443473931
2018 27.33% 12.22% 1.18 1.388212133
Sheet1: computing Return on Equity Ratio of Sabeco in period from 2016 to 2018
Commented:
Return on Equity ratio (ROE) of company over the years 2016-2018 is also quite
positive. With 100vnd equity spent profit after tax earned in 2016 is VND 4.106, in
2017 is VND 4.087 and 2018 was VND 2.733. This shows that the Company's business
activities are well developed.
Sheet2: Summary of profitability Ratios
Sabeco 2016 2017 2018
Profit margin 13.34% 14.37% 12.22%
Return on asset (ROA) 30.62% 28.31% 19.68%
Return on equity (ROE) 41.06% 40.87% 27.33%

Dupont analysis diagram

ROE

ROA DR

ROS AT
ROE =ROA
1 – DR
ROA = ROS x AT
Dupont Analysis
2016 2017 2018
cost of sale 26,513,435,310,686 29,588,446,699,863 32,627,544,285,893
selling expense 650,161,156,589 1,446,841,604,384 1,426,024,833,322
general and administration 312,759,691,123 370,150,098,282 418,418,135,868
expense
depreciation 0 0 0
financial expenses 20,775,323,891 50,027,658,964 123,171,219,786
income tax benefit 821,161,839,333 13,084,896,507 66,364,907,398
net other income 36,021,775,626 7,838,020,580 3,533,606,116
cash and cash equivalents 1,880,612,291,229 2,382,294,145,898 2,540,016,444,290
account receivable(short-term
+ long term) 1,644,771,674,369 2,475,598,419,697 771,491,328,015
inventory 395,709,326,162 388,093,755,215 441,938,225,352
fixed assets 2,052,019,379,902 1,840,303,606,752 1,626,479,824,180
long-term investment 3,760,530,037,279 3,810,074,657,892 3,662,586,585,828

 Return on Equity Ratio analysis (ROE)


YEAR 2015 2016 2017 2018
ROE(%) 25,96% 41.06% 40.87% 27.33%

ROE
ROE

50.00% 41.06% 40.87%


40.00%
25.96% 27.33%
30.00%
20.00%
10.00%
0.00%
2015 2016 2017 2018
According to the table above, ROE is dramatically increased from 25.96% (2015) to
41.06% (2016) and after that decreased to 27.33% (2018).ROE is calculated for
company’s ability to generate profits from the investments of shareholders. The ROE of
SABECO have a strong growth potential between the 4 years even though ROE on
2016 and 2018 were occurred drop performance. But most analysts believe that a ROE
of 10% or less is unsatisfactory. A return on equity of 17% or 18% is considered very
good, 20% excellent, and 25% and above, superior. So from that, it can say that
management of SABECO have a highly effectiveness in financing the operation and
help to growth the company between the 4 years.
 Impact of return on sales(ROA)
SABECO 2017 2018 Variance
ROA 28.31% 19.68% 8.63%

- According to the table: ROA in 2011 reached 19.68% , decrease 8.63% compared
to 2017(28.31%) , proving that the company’s operation was not effective
 ROE decrease 8.63%
 Impact of debt ratio(DR)
SABECO 2016 2017 2018
DR 8% 14.26% 2.7%

- From the table above, SABECO has the highest debt-to-equity ratio which is
14.26% in 2017, it has lower debt-to-equity ratio which is 2.7%in 2018. In 2018
the ratio was 2.7% which nearly 3 to meant can considered that the SABECO is
use more equity and less borrowings or debt as source of financing or also can
said that this company funds with an even mix of debt and equity to financing.
- According to the table of ROA:
 In 2017:
- ROA of SABECO is 28.31% mean that 100 VND of investment assets will
generate 28.31 VND of profit after tax.
- Suppose that company does not use debt , its ROE is 28.31%, but in fact 2017,
ROE of conpany is 40.87%, its showed that the company’s debt usage in 2017
had a positive effect causing ROE ti increase 12.56%.
 In 2018
- ROA is 19.68% mean that 100VND of investment assets will generate 19.68
VND of profit after tax.
- Suppose that company does not use debt , ROE is 19.68%,but according to data,
the ROE of 2018 was reached 27.33%, it proves that the company has use its debt
effectively causing ROE increase 7.65%
 So , we can see that in 2018 company use debt was less effective than 2017
 Impact of DR to ROE causing ROE increase 12.56% - 7.56%= 5%
 Showed that
- Impact of ROA causing ROE decrease 8.63%
- Impact of DR causing ROE increasing 5%
 So , the combined impact of 2 factors , ROE in 2018 decreased