Institute of professional Education and Research

FINANCIAL MANAGEMENT Reliance Infrastructure Ltd Power presentation on Du Pont Group no. 15

Submitted By:GOVIND DHAKAD

DU PONT ANALYSIS

A type of analysis that examines a company return on breaking

It into three main components: • profit margin • assets turnover • leverage factor.

By breaking the ROE into distinct parts, investors can examine how effectively a company using equity, since poorly performing components will drag down overall figure.

ROA

The return on assets (ROA) ratio- Developed by DuPont for its own use is now used by many firms to evaluate how effectively assets are used. It measures the combined effects of profit margins and asset turnover.

Return on Assets = E A T

ASSET

ROA 2008 2009 2010 2011 20120.0009 0.036 0.0508 0.04259 0.0728

ROE

The return on equity (ROE) ratio is a measure of the rate of return to stockholders.

ROE = EAT

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SHARE HOLDERS FUNDROE 2008 2009 2010 2011 2012

0.015 0.006 0.067 0.054 0.132

RETENTION RATIO

Percentage of the earnings of a firm that are not paid out to stock holder (share holder) as dividend are either reinvested in the firm or are kept as reserve for specified purposes (such as to pay off a debt or purchase a capital assets)

RR = NET INCOME - DIVIDENT

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NET INCOME

RR 2008 2009 2010 2011 2012

0.9868 0.97 0.9838 0.981 0.9869

INTERNAL GROWTH RATE

The highest level of growth achievable for a business without obtaining outside financing. A firm's maximum internal growth rate is the level at which growth from general business operations can continue to fund and grow the company. 

IGR = ROA * b

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1 - (ROA * b)IGR 2008 2009 2010 2011 2012

0.0087 0.036 0.051 0.04 0.077

SUSTAINABLE GROWTH RATE

The sustainable growth rate is a measure of how much a firm can grow without borrowing more money. After the firm has passed this rate, it must borrow funds from another source to facilitate growth.

SGR = ROE * b

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1 - (ROE * b)

Year 2008 2009 2010 2011 2012

SGR 0.014 0.098 0.070 0.055 0.150

Interpretation of cash flow

• Cash from operations- This is cash that was generated over the year 

• Earnings before interest and taxes (EBIT) plus depreciation minus taxes.

• Interpretation: This portion of the cash flow statement accounts for cash used to make new investments, as well as proceeds gained from previous investments.

• may serve as a better indicator than earnings, since noncash earnings can’t be used to pay off bills.

Year 2008 2009 2010 2011 2012Cash for Operating

-446.12 1606.01 610.44 892.64 246.97

Cont…..

• Cash from investing: Some businesses will invest outside their core operations or acquire new companies to expand their reach

• Interpretation: This portion of the cash flow statement accounts for cash used to make new investments, as well as proceeds gained from previous investments.Year 2008 2009 2010 2011 2012INVESTING ACTIVITY

-3097.53 -2451.69 512.35 992.64 -2611.77

Cont…….

Cash from financing activity -The owner draws and generally any changes in accounts from the Equity section of our balance sheet. If the owner has drawn money out of the business this represents money that came out of our bank account that was not reflected in net income. Therefore it has to be deducted from net income to arrive at cash.

Year 2008 2009 2010 2011 2012

Cash from financing

3858.58 914.90 -1071.98 263.16 276.53