Coca-Cola's DuPont decomposition — three ratios, one return

mentor: Return on equityDefinitionReturn on equityNet income as a share of average shareholders' equity — the accounting return the company earns on its owners' capital. Read it through the DuPont decomposition to see whether profitability, efficiency, or leverage is producing it.ROE = Net income ÷ Average shareholders' equityDrivers: Profitability · Efficiency · LeverageFull definition → asks one question: how much profit the year produced for each dollar the owners hold in the company. The DuPontDefinitionDuPont analysisA decomposition of return on equity into three levers: how profitable sales are (net margin), how hard assets work (asset turnover), and how much leverage amplifies the result (equity multiplier). Two companies can share an ROE for entirely different reasons — DuPont shows which lever is doing the work.ROE = Net margin × Asset turnover × Equity multiplier = (Net income ÷ Revenue) × (Revenue ÷ Avg total assets) × (Avg total assets ÷ Avg shareholders' equity)Drivers: Net margin · Asset turnover · Equity multiplierFull definition → decomposition answers it with three — what survives each sales dollar, how hard the asset base works, and how much of that base the owners actually funded.

Below are Coca-Cola's four filed inputs from its latest annual reportDefinitionForm 10-KThe audited annual report a US public company files with the SEC — the most complete single document about a business: audited financial statements, management's discussion, risk factors, and the auditor's own opinion. It is the primary source nearly every figure on Echelon grounds to.One 10-K = audited statements + MD&A + risk factors + auditor's reportDrivers: Assurance · Cadence · Restated comparativesFull definition → (Form 10-K), via SEC EDGAR: two income-statement lines and two balance-sheet instants at the same period end. Compute the three factors and check that their product recomposes the return on equityDefinitionReturn on equityNet income as a share of average shareholders' equity — the accounting return the company earns on its owners' capital. Read it through the DuPont decomposition to see whether profitability, efficiency, or leverage is producing it.ROE = Net income ÷ Average shareholders' equityDrivers: Profitability · Efficiency · LeverageFull definition →.

Net marginDefinitionNet marginNet income as a share of revenue — the bottom line after every cost: operations, interest, taxes, and one-offs. It is the margin the income statement ends on, and the profitability input to DuPont ROE analysis.Net margin = Net income ÷ RevenueDrivers: Operating margin · Interest · Tax rate · One-offsFull definition → = net income ÷ revenue. Asset turnoverDefinitionAsset turnoverRevenue generated per dollar of assets — the efficiency lever of the DuPont decomposition. Asset-light models turn assets fast at thin margins; asset-heavy models turn slowly at (usually) wider margins. The product of the two is what matters.Asset turnover = Revenue ÷ Average total assetsDrivers: Utilization · Asset intensity · PricingFull definition → = revenue ÷ total assets. Equity multiplierDefinitionEquity multiplierTotal assets divided by stockholders' equity — how many dollars of assets the company operates for each dollar the owners actually funded. It is the leverage leg of the DuPont decomposition: the same operating performance produces a higher return on equity when a thinner equity slice funds the asset base.Equity multiplier = Total assets ÷ Stockholders' equityDrivers: Debt load · Buybacks & dividends · Retained earningsFull definition → = total assets ÷ stockholders' equity. Their product is net income ÷ equity — the return on equityDefinitionReturn on equityNet income as a share of average shareholders' equity — the accounting return the company earns on its owners' capital. Read it through the DuPont decomposition to see whether profitability, efficiency, or leverage is producing it.ROE = Net income ÷ Average shareholders' equityDrivers: Profitability · Efficiency · LeverageFull definition →.