(1) Sales 2,500,000

(2) Net Profit 250,000

(3) Assets 2,000,000
(4) Liabilities 500,000
(5) Equity 1,500,000

18/02/2023 Du Pont Method 2

18/02/2023 Du Pont Method 3
Net Profit Sales Net Profit
Sales Assets Assets

18/02/2023 Du Pont Method 4

18/02/2023 Du Pont Method 5
Net Profit Assets Net Profit
Assets Equity Equity

18/02/2023 Du Pont Method 6

18/02/2023 Du Pont Method 7
 A B C D

(1) Sales 2,500,000 4,000,000 6,000,000 10,000,000

(2) Net Profit 250,000 250,000 250,000 250,000

(3) Assets 2,000,000 2,500,000 4,000,000 6,000,000

(4) Liabilities 500,000 500,000 1,200,000 80,000

(5) Equity 1,500,000 2,000,000 2,800,000 5,920,000

18/02/2023 Du Pont Method 8

 A B C D
Return on Sales
(Profit Margin) 10 6.25 4.17 2.5
Asset Turnover 1.25 1.6 1.5 1.67
Return on Assets 12.5 10 6.25 4.17
Equity Multiplier 1.33 1.25 1.43 1.01
Return on Equity 16.67 12.50 8.93 4.22

18/02/2023 Du Pont Method 9

Profit ÷ Sales ÷ Assets Assets ÷ Equity

Profit Margin Asset Return Equity Return

(Return on x Turnover = on x Multiplier = on
Sales) Assets Equity

Operating Investing Financing

18/02/2023 Du Pont Method 10

Profit ÷ Sales ÷ Assets Assets ÷ Equity

Profit Margin Asset Return Equity Return

(Return on x Turnover = on x Multiplier = on
Sales) Assets Equity

Operating Investing Financing

Operating Asset Use Financial

Efficiency Efficiency Leverage

18/02/2023 Du Pont Method 11

 Asset Return on Equity Return on
Firm Profit Margin Turnover Assets Multiplier Equity

A 15 1 15 2 30

B 10 2 20 1.75 35

C 8 3 24 1.5 36

D 6 4 24 1 24

18/02/2023 Du Pont Method 12

 Return
Profit Asset Return on Equity on
Year Margin Turnover Assets Multiplier Equity

2013 4.40 1.53 6.73 1.87 12.59

2014 5.00 1.50 7.50 2.00 15.00

2015 5.10 1.40 7.14 2.29 16.35

2016 6.00 1.20 7.20 1.98 14.26

18/02/2023 Du Pont Method 13

 Assets Liabilities Equity
Current = Current + Shareholders’
Non-Current Non-Current Equity

Debt Equity
Financing Financing

Financial
Leverage

Profitability
EPS
 Financial Leverage

• Entails borrowing and borrowing cost (interest)

• When the assets financed by debts are put
into use
– They can generate profit
– They can incur loss
 Unlevered Levered
Company Company
Assets $1,000 $1,000
Liabilities 0 400
Equity 1,000 600
Total 1,000 1,000

Earnings before interest and taxes (EBIT) $200 $200

Less: Interest (8% of debt) 0 32
Earnings before taxes 200 168
Less: Taxes (30%) 60 50.40
Net Profit 140 117.60

Outstanding shares 100 60

Earnings per share $1.40 $1.96
Return on Assets (ROA) 14% 14%
Return on Equity (ROE) 14% 19.6%
 Decline in Earnings to $80 Unlevered Levered
Company Company
Assets $1,000 $1,000
Liabilities 0 400
Equity 1,000 600
Total 1,000 1,000

Earnings before interest and taxes (EBIT) $80 $80

Less: Interest (8% of debt) 0 32
Earnings before taxes 80 48
Less: Taxes (30%) 24 14.4
Net Profit 56 33.60

Outstanding shares 100 60

Earnings per share $.56 $.56
Return on Assets (ROA) 5.6% 5.6%
Return on Equity (ROE) 5.6% 5.6%
 Further Decline in Earnings to $60 Unlevered Levered
Company Company
Assets $1,000 $1,000
Liabilities 0 400
Equity 1,000 600
Total 1,000 1,000

Earnings before interest and taxes (EBIT) $60 $60

Less: Interest (8% of debt) 0 32
Earnings before taxes 60 28
Less: Taxes (30%) 18 8.4
Net Profit 42 19.60

Outstanding shares 100 60

Earnings per share $.42 $.33
Return on Assets (ROA) 4.2% 4.2%
Return on Equity (ROE) 4.2% 3.3%
 Co. A Co. B
Assets 4,000,000 4,000,000
Debt (9% interest) - 1,000,000
Equity 4,000,000 3,000,000
Total 4,000,000 4,000,000

Earnings before interest and taxes (EBIT) 500,000 500,000

Interest - 90000
Earnings before taxes 500,000 410,000
Less: Taxes (35%) 175000 143500
Net Profit 325,000 266,500

ROA 8.13 8.13

ROE 8.13 8.88
 Balance Sheet
Income Statement
Assets Liabilities and Equity
Current Assets Current Liabilities
Revenue (Sales) 40,000
Cash 1,000 Accounts Payables 3,500 Cost of Sales 22,000
Receivables 5,000 Accrued Expenses 700 Gross Profit 18,000
Inventories 6,800 Loans Payable 4,000 Other Income 4,000
Prepayment 200 Provisions 400
Total Income 22,000
Total Current Assets 13,000 Total Current Liabilities 8,600
NonCurrent Assets NonCurrent Liabilities Expenses 18,000
Property and Equipment 10,000 Loans Payable 5,000 Earning Before Interest and Taxes 4,000
Investment Property 4,000 Total Liabilities 13,600 Financial/Interest Expense 720
Intangible Assets 2,000 Equity
Earnings Before Taxes 3,280
Other Assets 1,000 Share capital 10000
Total NonCurrent Assets 17,000 Retained earnings 6400 Taxes 984
Total Assets 30,000 Total Liabilities and Equity 30,000 Net Profit 2,296