关于杜邦分析法的外文翻译

外文资料及中文译文

作 者 姓 名专 业指导教师姓名专业技术职务

*** 财务管理 *** 副教授

外文资料

FIVE WAYS TO IMPROVE RETURN ON EQUITY

The Du Pont Model: A Brief History

The use of financial ratios by financial analysts, lenders, academic researchers, and small business owners has been widely acknowleged in the literature. (See, for example, Osteryoung & Constand (1992), Devine & Seaton (1995), or Burson (1998) The concepts of Return on Assets (ROA hereafter) and Return on Equity (ROEhereafter) are important for understanding the profitability of a business enterprise. Specifically, a “return on” ratio illustrates the relationship between profits and the investment needed to generate those profits. However, these concepts are often “too far removed from normal activities” to be easily understood and useful to many managers or small business owners. (Slater and Olson, 1996)

In 1918, four years after he was hired by the Du Pont Corporation to work in its treasury department, electrical engineer F. Donaldson Brown was given the task of untangling the finances of a company of which Du Pont had just purchased 23 percent of its stock. (This company was General Motors!) Brown recognized a mathematical relationship that existed between two commonly computed ratios, namely net profit margin (obviously a profitability measure) and total asset turnover (an efficiency measure), and ROA. The product of the net profit margin and total asset turnover equals ROA, and this was the original Du Pont model, as illustrated in Equation 1 below.

Eq. 1: (net income / sales) x (sales / total assets) = (net income / total assets) i.e. ROA

At this point in time maximizing ROA was a common corporate goal and the realization that ROA was impacted by both profitability and efficiency led to the development of a system of planning and control for all operating decisions within a firm. This became the dominant form of financial analysis until the 1970s. (Blumenthal, 1998)

In the 1970s the generally accepted goal of financial management became “maximizing the wealth of the firm’s owners” (Gitman, 1998) and focus shifted from ROA to ROE. This led to the first major modification of the original Du Pontmodel. In addition to profitability and efficiency, the way in which a firm financed its activities, i.e. its use of “leverage” became a third area of attention for financial managers. The new ratio of interest was called the equity multiplier, which is (total assets / equity). The modified Du Pont model is shown in Equations 1 and 2 below.

Eq. 2: ROA x (total assets / equity) = ROE

Eq. 3: (net income / sales) x (sales / total assets) x (total assets / equity) = ROE

The modified Du Pont model became a standard in all financial management textbooks and a staple of introductory and advanced courses alike as students read statements such as: “Ultimately, the most important, or “bottom line” accounting ratio is the ratio of net income to common equity (ROE).” (Brigham and Houston, 2001)

The modified model was a powerful tool to illustrate the interconnectedness of a firm’s income statement and its balance sheet, and to develop straight-forward strategies for improving the firm’s ROE.

More recently, Hawawini and Viallet (1999) offered yet another modification to the Du Pont

model. This modification resulted in five different ratios that combine to form ROE. In their modification they acknowlege that thefinancial statements firms prepare for their annualreports (which are of most importance to creditorsand tax collectors) are not always useful tomanagers making operating and financialdecisions. (Brigham and Houston, p. 52) Theyrestructured the traditional balance sheet into a“managerial balance sheet” which is “a moreappropriate tool for assessing the contribution ofoperating decisions to the firm’s financialperformance.” (Hawawini and Viallet, p. 68)This restructured balance sheet uses the conceptof “invested capital” in place of total assets, andthe concept of “capital employed” in place oftotal liabilities and owner’sequity found on thetraditional balance sheet. The primary differenceis in the treatment of the short-term “workingcapital” accounts. The managerial balance sheet uses a net figure called “working capital requirement” (determined as: [accounts receivable + inventories + prepaid expenses] – [accounts payable + accrued expenses]) as a part of invested capital. These accounts then individually drop out of the managerial balance sheet. A more detailed explanation of the managerial balance sheet is beyond the scope of this paper, but will be partially illustrated in an example. The “really” modified Du Pont model is shown below in Equation 4.

Eq. 4: (EBIT / sales) x (sales / invested capital) x (EBT / EBIT) x (invested capital / equity) x (EAT / EBT) = ROE

(Where: invested capital = cash + working capital requirement + net fixed assets) This “really” modified model still maintains the importance of the impact of operating decisions (i.e. profitability and efficiency) and financing decisions (leverage) upon ROE, but uses a total of five ratios to uncover what drives ROE and give insight to how to improve this important ratio.

The firm’s operating decisions are those that involve the acquisition and disposal of fixed assets and the management of the firm’s operating assets (mostly inventories and accounts receivable) and operating liabilities (accountspayable and accruals). These are captured in thefirst two ratios of the “really” modified Du Pontmodel. These are:

1. operating profit margin: (Earnings Before Interest & Taxes or EBIT / sales) 2. capital turnover: (sales / invested capital)

The firm’s financing decisions are those that determine the mix of debt and equity used to fund the firm’s operating decisions. These are captured in the third and fourth ratios of the “really” modified model. These are:

3. financial cost ratio: (Earnings Before Taxes or EBT / EBIT) 4. financial structure ratio: (invested capital / equity)

The final determinant of a firm’s ROE is the incidence of business taxation. The higher the tax

rate applied to a firm’s EBT, the lower its ROE. This is captured in the fifth ratio of

the “really”

modified model.

5. tax effect ratio: (Earnings After Taxes or EAT / EBT)

The relationship that ties these five ratios together is that ROE is equal to their combined product. (See Equation 4.)

Example of Applying the “Really” Modified Du Pont Model

To illustrate how the model works, consider the income statement and balance sheet for the fictitious small firm of Herrera & Company, LLC. Income Statement

Net Sales …………………………………………………….. $766,990 Cost of Goods Sold ………………………………………….. (560,000) Selling, General, & Administrative Expenses ………………. (143,342) Depreciation Expense ……………………………………….. (24,000) Earnings Before Interest & Taxes …………………………… $ 39,648 Interest Expense ……………………………………………... (12,447) Earnings Before Taxes ………………………………………. $ 27,201 Taxes ………………………………………………………… (8,000) Earnings After Taxes (net profit) ……………………………. $ 19,201 Balance Sheet

Cash ……………………….$ 40,000 Notes Payable ………………… $ 58,000 Pre-paid Expenses ………... 12,000 Accounts Payable …………….. 205,000 Accounts Receivable ……… 185,000 Accrued Expenses ……………. 46,000 Inventory ………………….. 200,000 Current Liabilities ……………. $309,000 Current Assets ……………. $437,000 Long-Term Debt

Land/Buildings …………… 160,000 Mortgage ……………………. 104,300

Equipment ………………… 89,000 8-Year Note ………………… 63,000

Less: Acc. Depreciation …... (24,000) Owner’s Equity ……………….. 185,700

Net Fixed Assets ………….. $225,000 Total Liabilities & Equity …….. $662,000 Total Assets ………………. $662,000 Computation of ROE

1. Operating Profit Margin = $39,648 / $766,990 = .0517 2. Capital Turnover = $766,990 / $411,000* = 1.8662 3. Financial Cost Ratio = $27,201 / $39,648 = .6861

4. Financial Structure Ratio = $411,000 / $185,700 = 2.2132 5. Tax Effect Ratio = $19,201 / $27,201 = .7059

ROE = .0517 x 1.8662 x .6861 x 2.2132 x .7059 = .1034** or 10.34%