3. DuPONT IDENTITY
PROFIT MARGIN x TOTAL ASSETS TURNOVER x EQUITY MULTIPLIER
SALES
DIVIDED BY
TOTAL ASSETS
x
TOTAL ASSETS
DIVIDED BY
COMMON
EQUITY
=
NET INCOME
DIVIDED BY
SALES
x
RETURN ON
EQUITY - ROE
DuPont identity is ROE calculated by the breakup of three
components,.
ROE essentially indicates how well the company used
reinvested earnings to generate additional earnings.
In the nutshell, ROE represents how much profit a
company is able to generate given the resources
provided by its stockholders…
4. ROE 2008 – 2012
P&G’s
AVERAGE
ROE
18.6%
20.8%
C-P
AVERAGE
ROE
ZIL
AVERAGE 8.9%
BETTER
GOOD
LOW
5.
6. CURRENT RATIO
CURRENT RATIO
CURRENT ASSETS / CURRENT
LIABILITIES
An indication of a company’s
ability to pay its short term
obligations.
If the current assets of
the company are more
than twice its current
liabilities, that company
is considered to have a
good short term
financial strength…
8. QUICK 0R ACID TEST RATIO
A measure of a company’s
liquidity and the ability to meet
its obligations.
It shows the per
dollar relation of
easily convertible
assets available to
pay off current
liabilities…
CURRENT ASSETS INVENTORIES
-
CURRENT
LIABILITES
12. PROFIT MARGIN ON SALES
NET PROFIT
SALES
=
PROFIT
MARGIN ON
SALES
This ratio indicates how
much profit the
company generates per
dollar sales…
Higher profit
margin
companies
are preferred
over lower
ones.