Dear Mike,
I would like to use the DuPont identity approach to the exam questions on financial statement analysis and interpretation. I was wondering if it is ok to do that since none of the F7 textbooks use this approach, but I, however find this to be a convenient way of systematically approaching financial statement analysis.
Not everyone is aware that this approach is called the DuPont approach, so, just in case, I will briefly describe it:
ROE (Return on Equity)
is
ROA (Return on Assets) x Equity multiplier (Assets/Equity)
next. ROA is:
Profit Margin x Asset Turnover
next, Profit margin is:
Net income / Sales
and Asset Turnover is:
Sales/Assets
Could you please let me know what you think?
Many thanks,
Valentina
I would like to use the DuPont identity approach to the exam questions on financial statement analysis and interpretation. I was wondering if it is ok to do that since none of the F7 textbooks use this approach, but I, however find this to be a convenient way of systematically approaching financial statement analysis.
Not everyone is aware that this approach is called the DuPont approach, so, just in case, I will briefly describe it:
ROE (Return on Equity)
is
ROA (Return on Assets) x Equity multiplier (Assets/Equity)
next. ROA is:
Profit Margin x Asset Turnover
next, Profit margin is:
Net income / Sales
and Asset Turnover is:
Sales/Assets
Could you please let me know what you think?
Many thanks,
Valentina
