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1 – 2 of 2Stephanie M. Weidman, Daniel J. McFarland, Gulser Meric and Ilhan Meric
DuPont financial analysis is generally used in micro-economic studies to compare an individual firm’s financial performance with industry averages. The purpose of this paper is to…
Abstract
Purpose
DuPont financial analysis is generally used in micro-economic studies to compare an individual firm’s financial performance with industry averages. The purpose of this paper is to undertake a macro-economic cross-sectional analysis of the determinants of return-on-equity (ROE) in USA, German and Japanese manufacturing firms.
Design/methodology/approach
The authors use cross-sectional log-linear multivariate regression analysis to determine the elasticity of ROE to changes in net profit margin (NPM), total assets turnover (TAT) and equity multiplier (EQM) in USA, German and Japanese manufacturing firms. The authors obtain the data for the analysis from the COMPUSTAT Research Insight/Global Vintage database.
Findings
With data for all manufacturing firms, the authors find that the most important determinant of ROE is NPM in all three countries. The least important determinant of ROE is TAT in the USA and Germany, and EQM in Japan. Electronics is the most important manufacturing industry in all three countries, the authors also apply the analysis to data for the electronics manufacturing firms in the three countries. The authors find that an increase of 10 percent in NPM increases ROE by about 9.8 percent in Germany, by about 8.3 percent in the USA, and by about 6.9 percent in Japan. An increase of 10 percent in TAT increases ROE by about 2.2 percent in Germany and by about 1.5 percent in Japan. An increase of 10 percent in EQM increases ROE by about 1.9 percent in Germany and by about 1.5 percent in the USA.
Practical implications
The empirical findings of this study can provide useful insights for financial managers regarding the determinants of ROE they should focus on to achieve the greatest impact on ROE.
Originality/value
DuPont analysis is generally used as a micro-economic tool at the firm level. This study is a macro-economic application of the tool to study the cross-sectional determinants of ROE at the industry level.
Details
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MITCHELL RATNER, GULSER MERIC and ILHAN MERIC
This study examines the cross‐autocorrelation of size‐based portfolio returns in a sample of 15 major European markets using daily data from January 1990 through December 1999…
Abstract
This study examines the cross‐autocorrelation of size‐based portfolio returns in a sample of 15 major European markets using daily data from January 1990 through December 1999. Previous studies have primarily used U.S. data. This study extends previous research by considering results in multiple European exchanges. We examine whether a difference in size‐based portfolios exists by testing cross‐autocorrelation, granger‐causality, and asymmetric responses in the European markets. The results confirm that large stock portfolio returns lead small stock portfolio returns in most European countries, and that cross‐autocorrelation is present both within and between European financial markets.