Asian Journal of Managerial Science (AJMS)
Financial Performance of Cement Industry in India Using Extended Dupont Approach
Author : K.T. GopiVolume 7 No.2 July-September 2018 pp 16-20
Abstract
The present study attempts to evaluate the financial performance of cement industry in India by choosing three leading cement companies like ACC, Gujarat Ambuja and UltraTech cement for the period 2006-2015 by using the extended DuPont approach. The extended DuPont approach has emphasized on analysis of Return on Equity (ROE) which disaggregates performance into five components: pre-interest/pretax margin, asset turnover, interest burden, tax efficiency and the equity multiplier. In the present study, we employed a two-step methodology: first, used extended DuPont approach to calculate return on equity of three companies and coefficient of correlation has been used to determine the relationship between the five components and return on equity. The results shows that return on equity of all three leading cement companies have declined drastically during 2006-2015. In the tough phase of cement industry all three leading companies have exhibited more or less similar financial performance during the study period. The contribution of five factors towards ROE is more or less similar among companies. The extended DuPont approach that we made for three leading cement companies in India emphasized on calculation of ROE is not relevant at all situations for taking rational economic decisions. In order to increase the rate of taking better economic decisions the results of extended DuPont approach can be compared across companies within an industry, between industries, or within a firm itself.
Keywords
DuPont, Equity Multiplier, Financial Performance, Return on Equity
Full Text:
References
[1] Ahmed A A (2012), “Financial Performance Analysis of the Jordanian Arab Bank by Using the DuPont System of Financial Analysis. International Journal of Economics and Finance, 4(4), 86-94.
[2] Christina, S S.,&Karthikeyan, K., (2012). Financial Performance of Pharmaceutical Industry in India using DuPont Analysis. European Journal of Business and Management, 4(14), 84-91.
[3] Dursun, D., Cemil, K.,& Ali. U., (2013). Measuring firm performance using financial ratios: A decision tree approach. Expert Systems with Applications,40(10), 3970-3983.
[4] Fulbag, S.,& Monika, M., (2010). Profitability analysis of acquiring companies. IUP Journal of Applied Finance, 16(5), 72.
[5] Henry, W. C., Carl, B., McGowan,&Junaina, M., (2010), “Evaluating the Impact of a Rapidly Changing Economic Environment on Bank Financial Performance Using the Dupont System of Financial Analysis. Asia Pacific Journal of Finance and Banking Research, 4(4).
[6] Joe, L., (2012). Breaking Down ROE Using the DuPont Formula. AAII Journal, 20-24.
[7] Gopi K.T., (2015). Financial Performance of Cement Industry in India-A Study of DuPont Approach. Journal of Global Management Outlook, 1(8), 45-53.
[8] Ly, K., Mart, S., and Vello, V., (2004). Estonian Banking Sector Performance Analysis Using Malmquist Indexes and DuPont Financial Ratio Analysis. International Business & Economics Research Journal, 3(12), 21-36.
[9] Mihaela, H., Claudia, O., and Lucian, B., (2011). A Du Pont Analysis of the 20 Most Profitable Companies in the World. International Conference on Business and Economics Research,1, 45-48.
[10] Ross, S., Westerfield, R., Jaffe, J.,& Jordan, B., (2008). Modern Financial Management. (pp. 52)McGraw Hill, New York.
[11] Thorpe, R.,& Holloway, J., (2008). Performance management- multidisciplinary perspectives. (pp.163).McGraw Hill, New York,
[12] Vaishali, P.,&Rashmi, S., (2015). Measurement of efficiency of top 12 banks in India using DuPont analysis. IUP Journal of Bank Management, 14(4), pp. 59.
[13] Wayne, A. T., (2012). Deconstructing ROE: DuPont Analysis. Computerized Investing First Quarter, 12-15.
[14] Annual Report of ACC Ltd (2006-2015)
[15] Annual Report of Gujarat Ambuja Ltd (2006-2015)
[16] Annual Report of Ultra Tech Cement Ltd (2006-2015).