Here you can find the updated DuPont analysis of Slovenian companies.
For today we would like to present you with a DuPont model of Slovenian companies, which is a reputable technique used to deconstruct return on equity (ROE) into three separate component parts, to have a clearer understanding of the changes occurring in ROE over time. Through this analysis, we will be able to ascertain which of the three factors is dominant in relation to the company’s ROE and give us an improved image of the company’s financial health and operating efficiency. Note that for this analysis we used (trailing 12m) 9M 2020 results.
Return on Equity of Slovenian Companies (%)*
*trailing 12m
The DuPont Equation gives us the ability to effectively deduce the strengths and weaknesses of a particular company, hence allows us to examine a company more thoroughly. This allows analysts to quickly know what areas of business to look at (inventory management, debt structure, margins) for more answers. Despite the advantages of the DuPont analysis, the method is still unable to substitute a more comprehensive and detailed analysis.
DuPont shows 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
We have excluded Telekom Slovenije from this analysis as their net profits has significantly reduced in FY 2019, creating an inaccurate picture for trailing results for calculating the profit margin as well as ROE. Only one company reported a double-digit ROE, Krka, indicating relatively high profitability in relation to stockholder’s equity. As a reminder, it is important to consider that ROE varies significantly from industry to industry, and comparison with a company’s peers is the most reliable way to figure out how to company is doing relative to an industry standard. In the case of Krka, their high ROE is mostly attributed to their profit margin. An important factor to consider is that a high ROE might not necessarily be achieved through operating efficiency but it can be a result of a highly leveraged company, which is not the case with any of Slovenian blue chips. Next on list is Cinkarna Celje with a ROE of 9.7%. The company’s components of ROE are relatively stable, without any particular component standing out and taking credit for either causing a high or low ROE.
Petrol is third on the list for highest ROE, with it being 8.3%. It can be seen that its third place is not any thanks to a high profit margin, but by having higher asset turnover and equity multiplier than any of the companies on the list.
