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Dupont Formula

The Dupont formula defines the net return to shareholder's equity as a function of the following components: operating margin, asset turnover, interest burden, financial leverage, income tax rate.

a. Calculate each of the five components listed above for 2001 and 2005, and calculate the return on equity for 2001 and 2005, using all five components.
b. Briefly discuss the impact of the changes in asset turnover and financial leverage on the change in ROE form 2001 to 2005.

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Solution Summary

The Dupont formula defines the net return to shareholder's equity as a function of the following components: operating margin, asset turnover, interest burden, financial leverage, income tax rate.

$2.19