Northspread
Formula sheet/NISM Series XV: Research Analyst/Company Analysis - Financial Analysis
[ COMPANY ANALYSIS - FINANCIAL ANALYSIS ]

3-Factor DuPont Analysis Decomposition of ROE

ROE=(Net Profit/Sales)×(Sales/Assets)×(Assets/Net Worth)ROE = (\text{Net Profit} / Sales) \times (Sales / Assets) \times (Assets / \text{Net Worth})
ROE=Net Profit Margin×Total Asset Turnover×Financial Leverage(Equity Multiplier)ROE = \text{Net Profit Margin} \times \text{Total Asset Turnover} \times \text{Financial Leverage} (\text{Equity Multiplier})
Variables

Diagnoses whether ROE growth is driven by pricing power (Margin), asset efficiency (Turnover), or risk (Debt Leverage).

Worked examples
Return on Equity (ROE) and ROCE (Pre- & Post-Tax)

Continuing from Problem 13: Bharat Consumer Ltd has Opening Net Worth of Rs 4,000 Cr and Closing Net Worth of Rs 4,400 Cr. Total Debt is Rs 1,200 Cr (constant). Total Assets are Rs 6,500 Cr. Calculate ROE, Pre-Tax ROCE, and Post-Tax ROCE.

Solvency & Coverage Ratios

Delta Infra Ltd has Total Debt of Rs 3,600 Cr, Net Worth of Rs 2,400 Cr, EBIT of Rs 480 Cr, and Annual Finance Interest Cost of Rs 320 Cr. Calculate the Debt-to-Equity (D/E) Ratio and Interest Coverage Ratio. Evaluate financial risk.

Operating Activity Ratios and Cash Conversion Cycle (CCC)

Shakti Steel Ltd reports Annual Sales of Rs 7,300 Cr and COGS of Rs 4,380 Cr. Year-end balances: Accounts Receivable = Rs 800 Cr, Inventory = Rs 600 Cr, Accounts Payable = Rs 480 Cr. Calculate DSO, DIO, DPO, and the Cash Conversion Cycle.

3-Factor DuPont Analysis Diagnostic Comparison

Analyze two retail firms: Alpha Mart (Net Profit Margin 4%, Asset Turnover 3.0x, Equity Multiplier 2.5x) and Beta Luxury (Net Profit Margin 16%, Asset Turnover 0.8x, Equity Multiplier 1.25x). Calculate ROE for both and identify their business drivers.