The Percent-Change Extension to the DuPont Identity

David Eagle, Arsen Djatej

Abstract


From the DuPont Identity, this paper derives a formula relating the percent changes in the return on equity (ROE) to the percent changes in the DuPont components. This formula is useful in determining the primary reasons why the ROE changed from one period to the next. While the periodic percent change relationship is nonlinear, a simple and intuitive additive formula is an approximation, albeit at times a poor approximation. We also convert the periodic percent changes in the ROE and its DuPont components into their equivalent instantaneous rates of change. These instantaneous rates of changes in the DuPont components do precisely sum to the instantaneous rate of change in the ROE, providing a method for analysts to both intuitively and accurately present their analysis.



Full Text:

PDF


DOI: http://dx.doi.org/10.5296/ajfa.v4i2.1579

Creative Commons License
This work is licensed under a Creative Commons Attribution 3.0 License.

To make sure that you can receive messages from us, please add the 'macrothink.org' domain to your e-mail 'safe list'. If you do not receive e-mail in your 'inbox', check your 'bulk mail' or 'junk mail' folders.

Copyright © Macrothink Institute   ISSN 1946-052X