DuPont Analysis of Luxury Industry and Market Portfolio : A Comparative Study

Authors

  •   Neha Bothra Assistant Professor, Shyam Lal College, University of Delhi, Shahdara, Delhi - 110 032
  •   Saloni Gupta Associate Professor, Bharati College, University of Delhi, Janakpuri, New Delhi - 110 058

DOI:

https://doi.org/10.17010/ijf/2020/v14i10-11/155969

Keywords:

Financial Performance

, Luxury Industry, DuPont Model, ROE.

JEL Classification

, E22, F65, L25, M41.

Paper Submission Date

, September 15, 2019, Paper Sent Back for Revision, February 15, 2020, Paper Acceptance Date, April 30, 2020.

Abstract

The measurement of financial performance is primarily based on return on equity (ROE) ratio. The DuPont model analyzes the sources of financial performance (ROE) of a firm. The luxury industry tends to drive high profitability in the market vis-a-vis the market counterparts. Is this an enough evidence to believe that the ROE is majorly contributed by profitability of the luxury firms ? The study intended to test the impact of firms’ profitability, asset efficiency, and financial leverage on ROE in the luxury industry (LI) and the non-luxury industry (NLI). The paper conducted the DuPont analysis, and a comparison between luxury industry and non-luxury industry was drawn. The empirical findings claimed that the maximum beta-coefficient was contributed by efficiency of a firm, which was measured by ATR for dependent variable ROE. On establishing a comparison, the results were found to be similar even in the luxury industry.

Downloads

Download data is not yet available.

Author Biographies

Neha Bothra, Assistant Professor, Shyam Lal College, University of Delhi, Shahdara, Delhi - 110 032

ORCID iD : orcid.org/0000-0001-8305-7245

Saloni Gupta, Associate Professor, Bharati College, University of Delhi, Janakpuri, New Delhi - 110 058

ORCID iD : orcid.org/0000-0001-5612-1977

Downloads

Published

2020-11-30

How to Cite

Bothra, N., & Gupta, S. (2020). DuPont Analysis of Luxury Industry and Market Portfolio : A Comparative Study. Indian Journal of Finance, 14(10-11), 24–42. https://doi.org/10.17010/ijf/2020/v14i10-11/155969

Issue

Volume 14, Issue 10-11, October-November 2020

Section

Articles
Crossref
Scopus
Google Scholar
Europe PMC

References

Almajali, A., Alamro, S. H., & Al-Soub, Y. Z. (2012). Factors Affecting the Financial Performance of Jordanian Insurance Companies Listed at Amman Stock Exchange. Journal of Management Research, 4(2), 266-289. http://dx.doi.org/10.5296/jmr.v4i2.1482

Appadurai, A. (ed.) (1986). The social life of things: Commodities in cultural perspective. London: Cambridge University Press.

Berger, A.N., & Di Patti, E. B. (2006). Capital structure and firm performance : A new approach to testing agency theory and an application to the banking industry. Journal of Banking & Finance, 30(4), 1065–1102. http://dx.doi.org/10.1016/j.jbankfin.2005.05.015

Bloomberg Financial Database. (n.d.). Statistics. Retrieved from www.bloomberg.com

Bowman, E.H., & Haire, M. (1975). A strategic posture toward corporate social responsibility. California Management Review, 18(2), 49–58. http://dx.doi.org/10.2307/41164638

Chang, K.J., Chichernea, D. C., & Hassab Elnaby, H. R. (2014). On the DuPont analysis in the health care industry. Journal of Accounting and Public Policy, 33(1), 83–103. http://dx.doi.org/10.1016/j.jaccpubpol.2013.10.002

Clarkson, P. M., Overell, M. B., & Chapple, L. (2011). Environmental reporting and its relation to corporate environmental performance. Abacus, 47(1), 27–60.

Cohen, S.G., Chang, L., & Ledford Jr., G. E. (1997). A hierarchical construct of self-management leadership and its relationship to quality of work life and perceived work group effectiveness. Personnel Psychology, 50(2), 275–308. http://dx.doi.org/10.1111/j.1744-6570.1997.tb00909.x

Fairfield, P.M., & Yohn, T. L. (2001). Using asset turnover and profit margin to forecast changes in profitability. Review of Accounting Studies, 6(4), 371–385. http://dx.doi.org/10.1023/A:1012430513430

Ghosh, C., Nag, R., & Sirmans, C.F. (2000). The pricing of seasoned equity offerings : Evidence from REITs. Real Estate Economics, 28(3), 363–384. http://dx.doi.org/10.1111/1540-6229.00805

Gitman, L. (2000). Principles of financial management. Addison Wesley Publishers.

Gleason, K. C., Mathur, L. K., & Mathur, I. (2000). The interrelationship between culture, capital structure, and performance: Evidence from European retailers. Journal of Business Research, 50(2), 185–191. http://dx.doi.org/10.1016/S0148-2963(99)00031-4

Gu, Z. (1993). Debt use and profitability : A reality check for the restaurant industry. Foodservice Research International, 7(3), 135–147. http://dx.doi.org/10.1111/j.1745-4506.1993.tb00213.x

Gupta, A. (2018). Evaluation of the impact of IND AS 113 fair value measurement on financial statements. Indian Journal of Finance, 12(11), 7–22. http://dx.doi.org/10.17010/ijf/2018/v12i11/138194

Hausman, J. (1978). Specification tests in econometrics. Econometica, 46(6), 1251–1272.

Katchova, A. L., & Enlow, S. J. (2013). Financial performance of publicly-traded agribusinesses. Agricultural Finance Review, 73(1), 58–73. http://dx.doi.org/10.1108/00021461311321311

Liesz, T. J., & Maranville, S. J. (2008). Ratio analysis featuring the Dupont Method : An overlooked topic in the finance module of small business management and entrepreneurship courses. Small Business Institute Journal, 1(1), 17-34.

McGuire, J. B., Sundgren, A., & Schneeweis, T. (1988). Corporate social responsibility and firm financial performance. Academy of Management Journal, 31(4), 854-872.

Nissim, D., & Penman, S. H. (2001). Ratio analysis and equity valuation : From research to practice. Review of Accounting Studies, 6(1), 109-154.

Penman, S., & Zhang, X. - J. (2004). Modeling sustainable earnings and P/E ratios using financial statement information (Working Paper). Retrieved from https://www0.gsb.columbia.edu/mygsb/faculty/research/pubfiles/904/Penman_Modeling_Sustainable_Earnings_and_PE_Ratios.pdf

Russo, M.V., & Fouts, P.A. (1997). A resource-based perspective on corporate environmental performance and profitability. Academy of Management Journal , 40(3), 534-559. http://dx.doi.org/10.5465/257052

S & P Dow Jones Indices. (2017). S&P US indices methodology (S&P Global Report). USA.

Sharma, P., & Gupta, S. (2019). A comparative study on effect of IFRS on profitability of selected companies in developed and developing countries. Indian Journal of Finance, 13(6), 65–73. http://dx.doi.org/10.17010/ijf/2019/v13i6/144852

Simerly, R., & Li, M. (2000). Environmental dynamism, capital structure and performance : A theoretical integration and an empirical test. Strategic Management Journal, 21(1), 31–49. 3.0.CO;2-T target="_blank">http://dx.doi.org/10.1002/(SICI)1097-0266(200001)21:1<31::AID-SMJ76>3.0.CO;2-T

Soliman, M. T. (2008). The use of DuPont analysis by market participants. The Accounting Review, 83(3), 823-853. https://dx.doi.org/10.2308/accr.2008.83.3.823

Stanwick, S.D., & Stanwick, P.A. (2000). The relationship between environmental disclosures and financial performance: An empirical study of US firms. Eco-Management and Auditing: The Journal of Corporate Environmental Management, 7(4), 155–164. 3.0.CO;2-6 target="_blank">https://dx.doi.org/10.1002/1099-0925(200012)7:4<155::AID-EMA137>3.0.CO;2-6

Upneja, A., & Dalbor, M.C. (2001). An examination of capital structure in the restaurant industry. The Journal of Hospitality Financial Management, 8(1), 54–59. https://dx.doi.org/10.1080/10913211.2000.10653739

Walker, M. (1997). Clean surplus accounting models and market-based accounting research : A review. Accounting and Business Research, 27(4), 341–355. https://dx.doi.org/10.1080/00014788.1997.9729559

Zeitun, R., & Tian, G. (2007). Capital structure and corporate performance: Evidence from Jordan. http://dx.doi.org/10.2139/ssrn.2496174