Question:
How is the DuPont relationship correlated to the leverage relationship and later change in equity (operations linked to financials)?
Author: Fredrik HolmAnswer:
By looking at sales and assets we can through the DuPont relationship derive the ROA, ROCE or ROIC (profit margin * asset turnover). This derivation can then be used ro calculate ROE* through the leverage relationship [(ROA + (ROA-COL) *(L/E)] * (1-t). ROE* can then be used to calculate the change in equity where ROE* - DIV/E + NI/E = Et/Et-1 (see picture)
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