Dupont Analysis and
Z-Score Analysis of Return on Stockholders’ Equity (ROE) Presented by Muslim
Corporate Performance Analysis using Excel Program Jakarta, 25-26 June 2008
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The Dupont Equation Return on Equity (ROE)
NI ROE = Equity Corporate Performance Analysis using Excel Program Jakarta, 25-26 June 2008
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The Dupont Equation Return on Equity (ROE)
NI ROE = Equity Sales Assets NI ROE = X X Sales Assets Equity Corporate Performance Analysis using Excel Program Jakarta, 25-26 June 2008
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The Dupont Equation Return on Equity (ROE)
NI X ROE = Sales ROE = ( profitability ) X Corporate Performance Analysis using Excel Program Jakarta, 25-26 June 2008
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The Dupont Equation Return on Equity (ROE) NI Sales ROE = X X Sales Assets ROE = ( profitability ) X (efficiency) X Corporate Performance Analysis using Excel Program Jakarta, 25-26 June 2008
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The Dupont Equation Return on Equity (ROE) NI Sales Assets ROE = X X Sales Assets Equity ROE = ( profitability ) X (efficiency) X (leverage)
Corporate Performance Analysis using Excel Program Jakarta, 25-26 June 2008
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The Dupont Equation Return on Equity (ROE) NI Sales Assets ROE = X X Sales Assets Equity ROE = ( profitability ) X (efficiency) X (leverage)
Corporate Performance Analysis using Excel Program Jakarta, 25-26 June 2008
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The Dupont Equation Return on Equity (ROE) Assets NI NI Sales X ROE = X = Sales Assets Equity Equity ROE = ( profitability ) X ( efficiency ) X (leverage )
Corporate Performance Analysis using Excel Program Jakarta, 25-26 June 2008
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The Dupont Equation Return on Equity (ROE)
NI ROE = Equity Sales Assets NI ROE = X X Sales Assets Equity Corporate Performance Analysis using Excel Program Jakarta, 25-26 June 2008
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Altman’s Z-score • The original Z-score equation was devised by Altman in 1968 and further developed in 1977. The original equation is: • Z = 1.2X1 + 1.4X2 + 3.3X3 + 0.6X4 + 0.999 X5 • • • • •
X1 = Working capital/Total assets X2 = Retained earnings/Total assets X3 = Earnings before interest and tax/Total assets X4 = Market capitalization/Book value of debt X5 = Sales/Total assets
Corporate Performance Analysis using Excel Program Jakarta, 25-26 June 2008
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Altman’s Z-score • Altman identified two benchmarks. Companies scoring over 3.0 are unlikely to fail and should be considered safe, while companies scoring under 1.8 are very likely to fail. • The value of 3 has since been revised down to 2.7. Z-scores between 1.8 and 2.7 are in the grey area. Corporate Performance Analysis using Excel Program Jakarta, 25-26 June 2008
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Altman’s Z-score (1983) Altman’s Z-score is • • • •
= 6.56 x (working capital/total assets) + 3.26 x (retained earnings/total assets) + 6.72 x (EBIT/total assets) + 1.05 x (book value of equity/book value of debt)
Corporate Performance Analysis using Excel Program Jakarta, 25-26 June 2008
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Altman’s Z-score (1983) • Indicator of overall financial health • Cutoffs: les than 1.1 bankrupt 1.1 – 2.6 gray area greater than 2.6 healthy • A Z-score of 1.1 or less does not mean the company is bankrupt, but does suggest that financial problems may exist
Corporate Performance Analysis using Excel Program Jakarta, 25-26 June 2008
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Thank you MY CONSULTING Wisma Nugra Santana 12 Floor Suite 1216 Jl Jend Sudirman Kav 7-8 Jakarta 10220, INDONESIA Tel 6221 5704791 Fax 6221 5704918 info@myconsulting.us
Presented by muslim@myconsulting.us
Corporate Performance Analysis using Excel Program Jakarta, 25-26 June 2008
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