For today, we decided to present you with a DuPont analysis of Croatian companies, a useful technique used to decompose the different drivers of ROE.
The DuPont analysis is a useful technique used to decompose the different drivers of ROE. This model allows stock analysts and investors to examine the profitability of a company using information from both the income statement as well as the balance sheet. This gives the analyst a thorough view of a company’s financial health and operating efficiency. Note that for this analysis we used H1 2021 results (trailing 12m).
ROE of Croatian Blue Chips (TTM results)
Speaking in broad terms the equation allows analysts to dissect a company, and to efficiently determine where the company is weak and where it is strong. This allows analysts to quickly know what areas of business to look at (inventory management, debt structure, margins) for more answers. However, the measure is still broad and is not a substitute for detailed analysis.
DuPont tells us that ROE is affected by three things:
- Operating efficiency, which is measured by profit margin
- Asset use efficiency, which is measured by total asset turnover
- Financial leverage, which is measured by the equity multiplier
For this we excluded three Tourist companies (ARNT, RIVP and MAIS) as they noted a TTM net loss. 3 out of 11 observed companies, recorded a double-digit ROE, with Dalekovod leading the list (47.7%). However, this could mostly be attributed to a very high equity multiplier of 13.54 as the company has been accumulating losses over the years. We also note that a high portion (57%) of the company’s equity comes from revaluation reserves. Recently the company published an invitation for the subscription of new shares with a maximum amount of HRK 412.5m. To read more about it, click here.
Ericsson Nikola Tesla noted also a very high ROE of 47.5%. The Group reported a profit margin of 7.7% and a somewhat elevated equity multiplier of 3.74x. We also add that the company has reported a asset turnover of 1.65, which is the highest among the observed companies.
Among food companies, Podravka noted a ROE of 8.2%, Atlantic Grupa noted a ROE of 6.4%, while Kraš reported a ROE of 5.8%. Their profit marigns ranged from 3.2% to 6.5%. The breakdown of profit margins of observed companies can be seen in the graph below.
Adris reported the lowest ROE of the selected companies, indicating that their insurance and food segment showed enough resilience to offset the affected tourism sector.
Profit margin breakdown (TTM)
