DuPont Analysis:

In the 1920s the DuPont Corporation created a method of analysis that breaks down ROA &
ROE into a more complex equation. DuPont analysis shows the causes of shifts in the number
and the actual source of profitability.

ROA
ROA = (EBIT-Tax)/assets
Multiplying by sales/sales, we get
ROA = sales/assets * (EBIT Tax)/sales
1st part of the equation gives us Asset Turnover Ratio and 2nd part is the profit margin

ROE
The three-step DuPont analysis breaks up ROE into three important components:
ROE = (Net profit margin)* (Asset Turnover) * (Equity multiplier)
These components include:
Operating efficiency: measured by profit margin.
Asset use efficiency: measured by total asset turnover.
Financial leverage: measured by the equity multiplier.
The Three-Step DuPont Calculation:
Taking the ROE equation:
ROE = net income / shareholder's equity
and multiplying the equation by (sales / sales) we get:
ROE = (net income / sales) * (sales / shareholder's equity)
We now have ROE broken into two components, the first is net profit margin, and the second
is the equity turnover ratio.
Now by multiplying in (assets / assets), we end up with the three-step DuPont identity:

ROE = (net income / sales) * (sales / assets) * (assets / shareholder's equity)

This equation for ROE breaks it into three widely used and studied components:
ROE = (Net profit margin)* (Asset Turnover) * (Equity multiplier)

NTPC
ROA
Year

2013

2012

2011

2010

2009

Net Profit

12619.39

9223.73

9102.59

8728.20

8201.30

Total Assets

133,641.17

120,629.50

111572.36

101521.10

93562.70

ROA

0.09442741

0.0764633

0.08158

0.08597

0.0877

ROE
Year

2013

2012

2011

2010

2009

Net Profit

12619.39

9223.73

9102.59

8728.20

8201.30

Owners
Equity

80,387.51

73,291.17

68384.12

63724.10

58,994.90

ROE

0.156982

0.12585

0.13311

0.136969

0.139017

POWER GRID

ROA
Year

2013

2012

2011

2010

2009

Net Profit

4234.50

3254.95

-5205.26

2,040.94

1,690.61

Total Assets

95033.34

77033.24

60032.84

50210.71

41999.41

ROA

0.044558

0.042254

-0.08671

0.040648

0.040253

ROE
Year

2013

2012

2011

2010

2009

Net Profit

4234.50

3254.95

-5205.26

2,040.94

1,690.61

Owners
Equity

26239.47

23487.78

21367.00

15793.92

13533.98

ROE

0.161379

0.138581

-0.24361

0.129223

0.124916

TATA POWER

ROA
Year

2013

2012

2011

2010

2009

Net Profit

1024.69

1169.73

941.49

947.65

922.20

Total Assets

23814.55

20954.12

18299.27

16459.78

13890.56

ROA

0.043028

0.055823

0.05145

0.057574

0.06639

ROE
Year

2013

2012

2011

2010

2009

Net Profit

1024.69

1169.73

941.49

947.65

922.20

Owners
Equity

12260.85

11756.99

11175.58

10532.36

8643.50

ROE

0.083574

0.099492

0.084245

0.089975

0.106693

INTERPRETATION

The factor which helps us distinguish between ROA & ROE is liabilities.
In the graphs obtained above, we can clearly see that ROE is above ROA at all the times
except in the case of Power Grid for the year 2011. During the year 2011, Profits earned by
Power Grid was towards the bottom side of the zero i.e. they made loss, which causeD ROE
to fall below ROA.
In case of Tata Power, difference between ROA & ROE is almost constant. Fluctuations are
failure low in these two organisation. It implies the the firm has constantly earned a decent
amount but the gap prevails due to the availability to pay off the debts it has incurred.