One important aspect of the evaluation of the company is studying its effectiveness in terms of ownership.Effectiveness in this case, as in many others, can be estimated by determining the profitability.However, a simple calculation may not be enough and it would be necessary to supplement the analysis.The most popular method is perhaps the factor analysis of return on equity.Let us dwell in more detail on its methodology and the main features.
Factor analysis of return on equity is usually associated with the formulas of the company DuPont, which allow you to quickly make all necessary calculations.It is important to understand in what way these formulas were obtained, besides, there is nothing complicated.Return on equity ownership, obviously, it is the ratio of net profit to the amount of this capital.Factor model derived from this relationship by elementary transformations.Their essence is to multiply the numerator and denominator on revenues and assets.After that is easy to see that the efficiency of the use of this part of the capital, its profitability is determined by the product of the degree of financial dependence on turnover of property (assets) and the level of profitability of sales.After compiling a mathematical model made directly to its analysis.It can be carried out in any manner suitable for the determined models.Factor analysis of return on equity using formulas DuPont is one of the variations of the method of absolute differences.He, in turn, is a special case of the method of chain substitutions.The basic principle of this method lies in the determination of alternate exposure of each factor in isolation, irrespective of the others.
is worth noting that in the same way and carried out factor analysis of economic profitability.It represents the ratio of profit to assets.After some changes, this figure can represent the product of the turnover of the property company on the profitability of sales.The subsequent analysis is the same manner.
necessary to pay special attention to what indicators should be used in calculations.Obviously, the information needed to use at least two periods to be able to observe changes.The data are taken from the statement of income, are cumulative, as they represent a certain amount for a given period.The balance of the data is presented on a specific date, so it is best to calculate their average value.
The above techniques, then there is a way of chain substitutions and modifications can be used to analyze almost any deterministic factor model.For example, factor analysis of the current liquidity ratio can be carried out very simply.For more detailed it is advisable to disclose the formula of this factor, reflecting the numerator components of current assets and the denominator - short-term liabilities.Next, you need to calculate the effect of each of the factors identified.It should be noted that this model can not be applied and the absolute difference in the method of the same name, as it has a multiple character.
value of any kind of analysis is difficult to overestimate, and factor analysis of return on equity and other indicators is one of the best methods of promoting the adoption of correct managerial decisions.Identify strong negative impact of a factor clearly indicates where to direct impact.On the other hand, a positive impact can indicate, for example, the presence of specific reserves profit growth.
