I-Hui's Blog

Business Strategic Research

DuPont Analysis for Southwest Airlines Co. (2008-2010)

DuPont analysis is an expression which breaks ROE (Return on Equity) into three parts.
Basic formula is as listed below:
ROA = (Net profit/Sales)*(Sales/Assets)
= Net profit/Assets

ROE = (Net Profit/Equity)
= (Net profit/Sales)*(Sales/Assets)*(Assets/Equity)
= (Profit margin)*(Asset turnover)*(Equity multiplier)

· Profitability (measured by Profit Margin=Net profit/Sales)
· Operating efficiency (measured by Asset Turnover=Sales/Total Assets)
· Financial leverage (measured by Equity Multiplier=Assets/Equity)

Compare the DuPont analysis chart from 2008 to 2010, Southwest has the highest ROE in 2010 and lowest in 2009. Assets turnover in 2010 is the highest, and 2008 and 2009 is equal and only one third of 2010. The profit margin is the highest in 2010, 2008 is the second and 2009 is the lowest again. The assets turnover rate does not seem significant different in these three years but 2009 remain the lowest. The financial leverage is decreasing since 2008. Overall, from the comparing result of the DuPont Charts from 2008 to 2010, we can see Southwest was suffering a significant difficult operation in 2009, but soon recovered in 2010.

Enhanced by Zemanta

Comments are currently closed.