Help with DuPont Analysis!

bump, someone please help me!

Just a guess, but I think if you're looking at a company with negative equity then you simply can't use ROE or DuPont analysis for the same reasons why you can't use the P/E ratio when a company has negative earnings. Seems like one of those situations where you're SOL and have to find a different approach more suitable to the company.

But, just spit-balling here, I suppose you could smooth the equity and earnings over, let's say 5 years (or something) to force them to be positive. Although, I'm not sure how kosher such an approach would be (probably not very).

Or, another thought, maybe use market value of equity? Again, probably not a good idea, but it seems like we're looking for the "best of the worst" solutions here.

Really, I have no idea, seems like a very peculiar problem.

Good luck!

Yeah, thanks! I was thinking about how I could remediate it without unbalancing the BS. I'm pretty new to using this method, so perhaps a negative leverage ratio is actually permissable. Not too sure, but have seen some sources say that it means that ROE does not belong to the company?

Any further clarifications would be welcome, however @mikesswimn I think you may be right that it kind of breaks the model.

Or another reasonable thought is that I don't understand it enough to decompose it far enough to get a real answer.

Thanks again!

I think it'll break your model for the reason mikesswimn noted. I don't know what you're doing with the data but I'd probably just keep going at it the way you were.

I'm curious, are you just trying not to bug your analyst? Probably safe to assume they'd have your answer. But I do like this discussion, so I'm not knocking creating the thread.

Yeah, it really isn't for any of the analysis that we use, however I was given some reading material last summer during my internship by my analyst then and have been catching up on it. Basically read the DuPont Analysis chapter and became very interested in how it breaks down performance drivers etc so you can get a better sense of what each companys' key metrics are.

I could ask my analyst what it means, however feel that they may just ask me what the hell I'm doing.

.

For one year, there is (2008), but the following years ('09 and '10) have very messy number; e.g. net profit margin = 5.09% and Leverage is -252 (due to negative equity of only 652 and total assets of 164,687, i.e. 164687/652) in '10.

So... my ROE for that year (2010) is -1005.67%. The fluctuations from year to year are so massive that I feel like the analysis is almost pointless.

ROE Numbers starting 2012 going back till 2008:

35.42% 134.56% -1005.67% -1.41% 92.04%

Anyways, doubt there's much more I can do with it at this point.

You can't apply it to everything. It works well for some companies like AAPL (margin) and ABC (leverage).

Thanks, I will keep that in mind.