651 Take Home

651 Take Home - Yukai Chen X02151029 Fin 651 Take Home...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
Yukai Chen X02151029 Fin 651 Take Home Assignment Dupont Analysis for Home Depot and Lowes The bases for this approach are the linkages made through financial ratios between the balance sheet and the income statement. We can better understand a company's returns over time or its returns in comparison with its competitors by breaking returns into their components. Decomposing ROE is useful in determining the reasons for changes in ROE over time for a given company and for differences in ROE for different companies in a given time period. I will use one of the most commonly used and the one found in popular research databases, such as Bloomberg. ROA is calculated as: = ROE Net incomeAverage shareholders' equity The decomposition of ROE makes use of simple algebra and illustrates the relationship between ROE and ROA. Expressing ROE as a product of only two of its components, we can write: = ROE Net incomeAverage shareholders'equity = × Net incomeAverage total assets Average total assetsAverage shareholders'equity Because = Leverage Average total assetsAverage shareholders'equity This can be interpreted as: = × ROE ROA Leverage Using the data from Home Depot and Lowes, I can examine the trend in ROE Home Depot ROE = ROA × Leverage Page 1 of 11
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 12/14/2010 for the course FIN 651 taught by Professor Norrisl.larrymore during the Spring '10 term at St. John's.

Page1 / 5

651 Take Home - Yukai Chen X02151029 Fin 651 Take Home...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online