CFA CFA Level 2 Extended DuPont Equation

Extended DuPont Equation

  • This topic has 2 replies, 2 voices, and was last updated Oct-18 by spatel15.
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    • spatel15
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      Hey all,

      Has anyone seen this extended version of DuPont anywhere on the CFA curriculum? It seems to be more relevant for an analyst using DuPont (plus it sort of helps for FCFF/FCFE Valuation concepts), but DuPont seems to be everywhere, so I figured I could confirm here:

      ROE = NOPAT/Assets + D/E* [NOPAT/Assets – i*(1-t)]?

      i.e. ROE equals ROA plus the spread(ROA less after-tax cost of debt) mulitplied to degree of leverage?  This method helps me realize that unleveraged(M-M proposals) return on equity equals the return on assets. Anywho the point was if anyone has seen this equation in the plethora of pages we “should” be reading.

       I’ve seen the other extended version(with tax burden/financial burden), but that one is easy/doesn’t help a soul in analysis.

    • googs1484
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      No. If I were you, I would try hard to forget that and read up on it June 5th.

    • spatel15
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      As always, thanks googs!

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