Dupont & Z-Score

Corporate Performance Analysis using Excel ProgramJakarta, 25-26 June 2008 1

Dupont Analysisand

Z-Score

Analysis of Return on Stockholders’ Equity (ROE)

Presented byMuslim

Corporate Performance Analysis using Excel ProgramJakarta, 25-26 June 2008 2

The Dupont EquationReturn on Equity (ROE)

EquityNIROE =

Corporate Performance Analysis using Excel ProgramJakarta, 25-26 June 2008 3

The Dupont EquationReturn on Equity (ROE)

EquityAssetsX

AssetsSalesX

SalesNIROE

EquityNIROE

=

=

Corporate Performance Analysis using Excel ProgramJakarta, 25-26 June 2008 4

The Dupont EquationReturn on Equity (ROE)

XityprofitabilROE

XSalesNIROE

)(=

=

Corporate Performance Analysis using Excel ProgramJakarta, 25-26 June 2008 5

The Dupont EquationReturn on Equity (ROE)

XefficiencyXityprofitabilROE

XAssetsSalesX

SalesNIROE

)()(=

=

Corporate Performance Analysis using Excel ProgramJakarta, 25-26 June 2008 6

The Dupont EquationReturn on Equity (ROE)

)()()( leverageXefficiencyXityprofitabilROE

EquityAssetsX

AssetsSalesX

SalesNIROE

=

=

Corporate Performance Analysis using Excel ProgramJakarta, 25-26 June 2008 7

The Dupont EquationReturn on Equity (ROE)

)()()( leverageXefficiencyXityprofitabilROE

EquityAssetsX

AssetsSalesX

SalesNIROE

=

=

Corporate Performance Analysis using Excel ProgramJakarta, 25-26 June 2008 8

The Dupont EquationReturn on Equity (ROE)

)()()( leverageXefficiencyXityprofitabilROE

EquityNI

EquityAssetsX

AssetsSalesX

SalesNIROE

=

==

Corporate Performance Analysis using Excel ProgramJakarta, 25-26 June 2008 9

The Dupont EquationReturn on Equity (ROE)

EquityAssetsX

AssetsSalesX

SalesNIROE

EquityNIROE

=

=

Corporate Performance Analysis using Excel ProgramJakarta, 25-26 June 2008 10

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 ProgramJakarta, 25-26 June 2008 11

Altman’s Z-score

• Altman identified two benchmarks. Companies scoring over 3.0 are unlikely to fail and should beconsidered safe, while companiesscoring under 1.8 are very likely to fail.

• The value of 3 has since been reviseddown to 2.7. Z-scores between 1.8 and 2.7 are in the grey area.

Corporate Performance Analysis using Excel ProgramJakarta, 25-26 June 2008 12

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 ProgramJakarta, 25-26 June 2008 13

Altman’s Z-score (1983)

• Indicator of overall financial health• Cutoffs: les than 1.1 bankrupt

1.1 – 2.6 gray areagreater 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 ProgramJakarta, 25-26 June 2008 14

Thank you

Presented bymuslim@myconsulting.us

MY CONSULTINGWisma Nugra Santana 12 Floor Suite 1216Jl Jend Sudirman Kav 7-8Jakarta 10220, INDONESIATel 6221 5704791Fax 6221 5704918info@myconsulting.us