Forecasting operating profitability with DuPont analysis

Bauman, Mark P.

doi:10.1108/raf-11-2012-0115

Cited by 32 publications

(29 citation statements)

References 20 publications

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“…Another stream of research on DuPont components find that the change in ATO is positively related to future changes in earnings [9]. Reference [10] extends these findings by reporting results based on in-sample parameter estimates. The study documents a significant relationship between the future RNOA and the change in PM.…”

Section: Prior Research On Dupont Analysismentioning

confidence: 78%

Operating Performance of Chinese Online Shopping Companies: An Analysis Using DuPont Components

Hao

Choi

2019

Sustainability

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Chinese online shopping industry has grown dramatically in recent decades. The purpose of this study is to investigate the key factors that affect the operating performance of online shopping companies in China. In particular, the study examines the three features of Chinese online shopping companies: (i) Multi-complex products/a single-special product, (ii) online store only/online and offline stores, (iii) US-listed/China-listed. The tests are leveraged by applying DuPont analysis which is widely used for identifying the sources of operating performance. DuPont analysis decomposes ROA (return on assets) into ATO (asset turnover) and PM (profit margin). A higher ATO represents efficient use of assets while a higher PM indicates efficient cost structure. By using seven Chinese online shopping companies, we find that companies selling multi-complex products have a higher ATO than companies selling a single-special product. However, multi-complex companies’ PM is lower than that of single-special companies, with no difference in ROA between those two groups. Second, online shopping companies with offline stores have a lower PM and ROA than online store only companies. Lastly, we document that US-listed online shopping companies have a higher ATO, PM, and ROA than China-listed companies. The results of this study provide important implications for the future development of the Chinese shopping industry. The findings may present the current situation and shortcomings of the companies, thereby playing a guiding role in the management and development of online shopping companies in China.

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Section: Prior Research On Dupont Analysismentioning

confidence: 78%

Operating Performance of Chinese Online Shopping Companies: An Analysis Using DuPont Components

Hao

Choi

2019

Sustainability

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“…The DuPont model, which is also called DuPont analysis and DuPont equation, was created in the early 1900s and became a well-established method of performing financial statement analysis (Soliman, 2008). It decomposes return on net operating assets into profit margin and asset turnover that provide insights into the underlying drivers of operating profitability (Bauman, 2014). The authors justify these findings by arguing that higher profits are ultimately generated by higher unit net sales, which are a direct consequence of better operating margins and higher prices and are not due to the efficient utilisation of the fixed assets in generating higher sales.…”

Section: Literature Reviewmentioning

confidence: 99%

Unveiling the Endogenous Relationship Between Technical Efficiency and Value Creation in Mergers and Acquisitions in Nigeria

Akpan

Chen

Antunes

2019

South African J Economics

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There is a growing literature on how the beneficial impacts of horizontal mergers and acquisitions (M&A) should be measured. Thus far, however, there have been few studies addressing endogeneity between technical efficiency and value creation: they tend to present a bidirectional and simultaneous relationship. This research contributes to the debate by investigating the impact of voluntary horizontal M&A on these metrics in Nigeria between 1995 and 2012, in light of the individual performance of bidders, targets, and the resulting corporate companies. First, technical efficiency, technology gap ratio, and returns‐to‐scale estimates were computed based on a meta‐frontier DEA approach, together with a set of contextual variables that encompass performance indicators which reflect the value creation process. Then, robust regressions were used to discriminate these efficiency estimates in terms of such business‐related variables, correcting for endogeneity and controlling for industry and trend effects. The results reveal that these contextual variables significantly impact virtual efficiency and returns‐to‐scale levels, and that there is a trade‐off between efficiency and value creation at some point in the merging process. Managerial implications are derived.

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“…Assets turnover was measured by the value of a company's sales and revenue in relation to the value of its assets and used as an indicator of the efficiency in which the assets were used to generate the revenue. The reason why asset turnover was selected as one of the input's variable is that the changes in the asset turnover ratio provide information on future profitability (Fairfield and Yohn, 2001;Bauman, 2014) as well as earnings management (Jansen et al, 2008). Identifying earning is important to access current economic performance in order to predict profitability and determine the firm's value (Jansen et al, 2012).…”

Section: Variable Constructionsmentioning

confidence: 99%

Robustness of efficient decision-making unit based on production model of stochastic frontier analysis with different distribution error

Arsad¹,

Isa²,

Razak³

2019

Int. j. adv. appl. sci.

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In the empirical stochastic frontier analysis, there has been an increasing interest in exploring the consistency of the production model for decisionmaking units. Among it is the issue of consistency, which has been recognized as a complex process due to many factors such as different model estimations, the behavior of inefficiency effects and types of distributional errors. This paper focuses on analyses the technical efficiency of Malaysian stock performance over the period of 2013 to 2017. By utilizes SFA production function (Cobb-Douglas and Translog), which allows two decompositions of inefficiency effect into its time-variant and time-invariant, within two distributional assumptions known as truncated-normal and halfnormal, which is predicted to estimate the technical efficiency score and provides a ranking efficiency based on the model estimation performance. Finally, to investigate the consistency of the estimated SFA efficiency score by examining its relationship with four models. These main findings figure out, using time-invariant inefficiency effect, Cobb-Douglas function with truncated-normal distribution more preferable for the dataset of study. By using four models with different distributional assumptions and production models, Spearman's rank-order was implemented and revealed that there was a high degree of correlation is found between efficiency estimates that derives from the models applied. Based on the empirical study, this research shows that the ranking efficiency for selected stock performance in Malaysia was said to be robust to different kinds of distributional errors and production models. This paper provides new evidence on consistency relative efficiency of stochastic frontier model based on the three assumptions; inefficiency effect, distribution error for technical inefficiency and production function.

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Forecasting operating profitability with DuPont analysis

Cited by 32 publications

References 20 publications

Operating Performance of Chinese Online Shopping Companies: An Analysis Using DuPont Components

Operating Performance of Chinese Online Shopping Companies: An Analysis Using DuPont Components

Unveiling the Endogenous Relationship Between Technical Efficiency and Value Creation in Mergers and Acquisitions in Nigeria

Robustness of efficient decision-making unit based on production model of stochastic frontier analysis with different distribution error

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