Padake, V., & Soni, R. (2015) pointed out that DuPont analysis is a sub-part of ratio analysis methodology for monitoring and enhancing the profitability and the returns of a company. Further, DuPont analysis provides a much deeper understanding of the efficiency of the firm. Moreover, DuPont model basically divides the ROE into three parts including the net profit margin “PM”, the total asset turnover “AT”, and the equity multiplier “EM”. Therefore, the equation (1) would represent the DuPont model as follows: (1): ROE = (Net Income/Total Revenue) * (Total Revenue/Assets) * (Total Assets/Total Equity) (Padake & Soni, 2015). Further, the equation becomes the equation (2) as follows: (2): ROE = (Net Profit Margin) * (Asset Turnover) * …show more content…
In effect, Table 3.1, in Appendix 1, shows that the REO of Verizon has increased from 11.87% in 2011 to 102.99% in 2015. Further, this increase is due to the increase in the PM, on the AT, and in the EM. In fact, the PM increased from 9.20% in 2011 to 13.96% in 2015. Further, the AT jumped from 0.4811 times to 0.5380 times between 2011 and 2015. Moreover, the EM extended from 2.6836 to 13.3132 from 2011 to …show more content…
Further, they point out the profitability, the operating efficiency, and the leverage of the company respectively. In fact, the PM points out the percentage of the total revenues, sales, that is turned into profit at various level of the operation. Further, the analysts use the profit margin basically for internal comparison. Therefore, a small PM reveals an insignificant margin of safety, a higher risk, and that a decrease in the income would wipe out the profit and lead the bottom line to a net loss (Kasilingam & Jayabal, 2015). The Table 3.1, above, shows that the PM of Verizon increased from 9.20% in 2011 to 20.94% in 2013. Further, it declined from 20.94% in 2013 to 0.1396 or 13.96 % in 2015. In fact, the average of the PM was 12.70% for the give five years. According to Browne (2017), based on the average expenses in the telecommunications industry, a reasonable profit margin could represent a ratio of 10 and 15 percent. Therefore, with 12.70% as an average PM, Verizon successfully generated good profit from 2011 to