Case Study: Analyzing the Dupont Analysis

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DuPont technique is a drawn-out and comprehensive analysis of the return on equity (ROE) of a company. Conferring to this financial technique, it is deemed that a business can attain a high ROE if it generates a high net profit margin, employs its assets in an effective manner so as to create more revenue and also, if the company has a high level of financial leverage. The following essay undertakes a DuPont analysis of Amazon and its competitor Walmart in the 2014 financial year.

ROE

Return on Equity is financial ratio that measures how well a company makes profit out of every dollar that is invested in by investors and stakeholders.

ROE = Net Income / Total Equity

Amazon = 596,000 / 13,384,000 = 0.04453

Walmart = 16,363 / 85,937 = 0.1904

ROA

Return on Equity is financial ratio that measures how well a company makes profit out of every dollar that is invested in its assets.

ROA = Net Income / Total Assets

Amazon = 596,000 / 65,444,000 = 0.0091

Walmart = 16,363 / 203,706 = 0.08032

Profit Margin

This net profit margin ratio is attained by dividing the net income by revenue. This ratio is indicative of the profitability levels of the company with regards to the net income in comparison to the revenues of the firm.

Profit Margin = Net Income / Revenue

Amazon = 596,000 / 107,006,000 = 0.00557

Walmart = 16,363 / 485,651 = 0.0337

Total Asset Turnover

This financial ratio measures a company's ability to generate revenue from its assets.

Total Asset Turnover = Net Sales / Average Total Assets

Amazon = 107,006,000 / ((65,444,000 + 54,505,000) / 2) = 1.7842

Walmart = 485,651 / ((203,706 + 204,751) / 2) = 2.378

Equity Multiplier

The equity multiplier is a financial ratio that gives a measure of the financial leverage of a company. The purchasing of assets by a company is financed by means of either debt or equity. Therefore, the greater… [END OF PREVIEW]

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Analyzing the Dupont Analysis.  (2016, March 31).  Retrieved May 25, 2019, from https://www.essaytown.com/subjects/paper/analyzing-dupont-analysis/7416960

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"Analyzing the Dupont Analysis."  Essaytown.com.  March 31, 2016.  Accessed May 25, 2019.
https://www.essaytown.com/subjects/paper/analyzing-dupont-analysis/7416960.