DuPont analysis example ROE

[@konstancyja82]

I'be never seen such a Well structured, "right to the point", easy to understand financial explanations! Amazing work!

[@TheFinanceStoryteller]

Wow, thank you. Great to hear that.

[@HINDIMOVIED-v9f]

Iam watching ater 6 years apple 400 return

[@lpgrunt]

You earned my “great job” award! Really appreciate your time, effort, and expertise. You get extra credit for high quality!!!

[@TheFinanceStoryteller]

Thank you very much for the kind and encouraging words, John! Glad you like it. :-)

[@igorbolev1553]

You’ve got real talent my friend! So nicely structured and self-explained slides. Thank you so much! Keep it up!

[@TheFinanceStoryteller]

Thank you, Igor! Will do! If you enjoyed this video on ROE, then definitely watch the related video on ROIC vs ROE vs ROA vs ROI as well kzbin.info/www/bejne/mXPEd3uIm9WCgZo Plus the ROA comparison Verizon vs Walmart kzbin.info/www/bejne/aJubk5mIbbCkgJI

[@igorbolev1553]

The Finance Storyteller thank you for the recommendation and feedback itself! Have a great day!

[@iyimail]

Thank you for giving insight to Dupont Analysis which was only a formula for me before. Now I can understand how to analyze ROE. Thanks for the great work!

[@TheFinanceStoryteller]

Wonderful! I actually got a better understanding myself of Return On Equity, doing the research for the video. :-) My advice: download the annual report or 10-K filing for a company you are interested in, and see if you can replicate the DuPont analysis for that company.

[@iyimail]

Hi, I made a basic study for Legrand group, if you can email me at [e-mail] then I can send you the details of the work. and my conclusions.

[@brokerstevefl]

once again, another easy-to-follow, easy to learn from, video. thank you so very much.

[@TheFinanceStoryteller]

You're very welcome, Steven! Most videos have info cards and end screens suggesting related videos, so let's see where the journey takes you on the Finance Storyteller channel. 🙂

[@andresao6109]

This video is so damn go. you get the math and the interpretation behind it. So useful, thank you 1000 times.

[@TheFinanceStoryteller]

You're welcome! Thank you for watching. I think you will like the related video on ROIC vs ROE vs ROA vs ROI as well: kzbin.info/www/bejne/mXPEd3uIm9WCgZo

[@Frozan]

@@TheFinanceStoryteller hi there, may l ask how to find the average of the equity and asset ?

[@TheFinanceStoryteller]

@@Frozan Hello! Take the balance sheet of the company, look up last year's asset total and this year's asset total, add them up, then divide by two. Same for equity: last year's balance plus this year's balance added up, then divide by two.

[@g97erry]

Thank you for posting! Really well explained!! Keep up the great work!!!

[@TheFinanceStoryteller]

Thank you for the kind words! Glad you enjoyed it.

[@mankm1974]

Very well explained. Thanks for the good work.

[@TheFinanceStoryteller]

You´re welcome! Thanks for the kind words.

[@asky123ful]

Thank you so much . it really helps me a lot.

[@TheFinanceStoryteller]

Glad to hear that!!! 😎

[@nokwazitracy6555]

i find this very useful thank you so much!

[@TheFinanceStoryteller]

Great to hear that! :-)

[@AnilkumarGulia]

great sir. are you also study indian company?

[@TheFinanceStoryteller]

Hi! None so far, but sounds like an interesting opportunity.

[@jackronanbravante8733]

Is other comprehensive income considered part of net income in this analysis? Thanks.

[@TheFinanceStoryteller]

No, other comprehensive income is not considered part of net income in this analysis. Apple FY17 net income was $48.4B, other comprehensive income was a loss of $784MM, so total comprehensive income $47.6B. Taking the $47.6B comprehensive income as numerator in the ROE calculation, would get you to 36% (versus 37% when taking net income as numerator).

[@jackronanbravante8733]

Really appreciate the reply. Thanks again.

[@miladalaei8270]

from where you got equity? I have exam in 2 hours :D

[@TheFinanceStoryteller]

I took the (book) value of the shareholders' equity from the latest year-end balance sheets, and then averaged them. Wishing you lots of success in the exam!

[@KamranB1]

Thanks Good video,I have a question please, why apple book value is decreasing while Net margin is increasing?

[@TheFinanceStoryteller]

Hi Ahmad! Equity on the balance sheet went from $128B at the end of September 2016 (column on the right) to $134B at the end of September 2017 (column on the left), so it has increased. Apple pays a dividend to its shareholders, and buys back a lot of shares, see my analysis of their Earnings Per Share: kzbin.info/www/bejne/ioO8kKCgnMyAh7s

[@KamranB1]

@@TheFinanceStoryteller Thanks for your relpy, I meant Equity is decreasing after December 2017 until now

[@TheFinanceStoryteller]

Thanks for highlighting that. Equity is indeed dramatically decreasing. This is where you need to "connect"/compare the income statement (between $55B and $60B net income per year in recent years) and the cash flow statement (between $80B and $85B of stock buybacks plus dividends per year in recent years). As a result, retained earnings on the balance sheet (one of the elements of equity) is getting depleted quickly. kzbin.info/www/bejne/rpragptrepx9jbM

[@KamranB1]

@@TheFinanceStoryteller Thank you👍👍

[@KamranB1]

@@TheFinanceStoryteller Thank you so much, great answer, and now another question pops up,why apple is buy-backing that causes decreasing in its Equity and book value? What do you think ? Is it a good idea to pay from equity to buyback?

[@youssefhamia3050]

Why did you get the average number between the periods?

[@TheFinanceStoryteller]

The numerator (Net Income) covers a 12-month period, so I feel it is appropriate to take for the denominator (Equity) the starting point and ending point from the balance sheet and average those, for a representative "full year" look. Even better would be to take a 5-point average of Equity: starting balance sheet and 4 quarter-ends.

[@Alhamduliah0]

How did u get the average asset? In your videos your always getting average numbers and I get soooooo confused.

[@TheFinanceStoryteller]

Hello Hadeel! Add up the number from the beginning of the year and the number of the end of the year, and then divide by two. In this case: ($322B + $375B) / 2 = $348.5B.

[@TrangNguyen-jf1yj]

Thank you so much! It turns out that ROS considers taxes inside its function as well, which is why we can use Net Income in Net Margin formula in ROE break down (in your video). It took me a few hours to go through confusing materials on the Internet, glad I found yours! however, can you explain why ROS is referred to Operating Profit (not considers taxes/interest) instead of the function Net Income/Sales you used (which considers taxes/interests)? (www.investopedia.com/terms/r/ros.asp)

[@TheFinanceStoryteller]

Hello Trang! I would consider the ROS definition that you found on Investopedia incorrect (or at least unusual). I personally always use the "traditional" definition of ROS per the DuPont equation (Net Income divided by Revenue), whereas Investopedia uses an "alternative" definition that I would label OM-ROS. This is a confusing element of finance.... different people can use a term like ROS in a different way, use a term like inventory turnover in a different way, etc. Always read the small print!

[@TrangNguyen-jf1yj]

@@TheFinanceStoryteller Thanks a lot!

[@jaderabbit1267]

Thank you, this was super helpful!

[@TheFinanceStoryteller]

Great to hear that! Thank you for watching and commenting.