IFB84: Dupont Analysis Lesson from the CFA Level I Test

Return on Equity is a quick and easy way to discover how well a company turns its assets into equity. The Dupont analysis goes even further into discovering how the company grows its return on equity. Be it through leveraging debt or growing revenue.
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Dave:                                    00:35                     All right, folks, we’ll walk up to testing for beginning podcast. This is episode eighty-four tonight. Andrew and I are going to do a two-parter here. So what we’re gonna do is we’re going to talk about the Dupont analysis and the reason why we’re going to talk about this is we got a great question from Facebook that Andrew and I wanted to answer on air, but we wanted to talk you guys through what the Dupont analysis was so that when we answered the question and it kind of makes sense to you guys. So for those of you who are not familiar with Dupont analysis, all raise your hand. Okay? That’s everybody. All right, so this is something that is not talked about a lot and it’s a very interesting analysis and what it is in a nutshell is the breakdown of the return on equity. And Andrew, I’m going to have you talk a little bit about return on equity and then we can kind of talk a little bit about how this analysis kind of that.

Andrew:                              01:31                     Yeah, sure. If you’re the asked me that question yesterday, I would’ve had my hand up to. So definitely not aware of it. I’m definitely aware of the return on equity. So that obviously helps a lot. We’ve turned. Oh, we’ve talked about return on equity before we had an episode in the archives or we talked about some of the efficiency ratios, return on assets, return on equity, so that episode might be a good supplement to this one and maybe if you listen to those back to back get a better understanding. I know it’s not that easy to learn these kinds of advanced topics through a podcast, but I think the more exposure you get to it, whether that’s through a podcast or through reading or just writing out some exercises, is trying to do them with some companies and stocks are out there. Then the more and more you can learn and kind of digest it.
Andrew:                              02:20                     Like you said, Dave, Dupont analysis is a breakdown of the return on the equity and it essentially breaks it down into three parts. So why it’s called Dupont is because, um, there’s a, there’s a meeting, it’s not, it’s still public, it’s called Dupont, now it merged with Dow Chemicals and now it’s called Dow Dupont. But there were three gentlemen there and they came up, basically, they wanted to figure out how, how they kind of take the return on equity and take it to the...