Deconstruction of ROE: An Implementation of DuPont Model on Selected Bangladeshi Commercial Banks

Md. Zahidur Rahman and Rubel Mia
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Md. Zahidur Rahman: Department of Business Administration, Lecturer of Finance, City University, Dhaka, Bangladesh
Rubel Mia: Dhaka, Bangladesh

International Journal of Economics and Financial Research, 2018, vol. 4, issue 6, 165-170

Abstract: This study attempts to measure the financial performance of selected Bangladeshi commercial banks for the period 2010-2016 through using the DuPont model which is an important tool for measuring profitability and judging the financial performance of any financial entity. The modified DuPont model disaggregates ROE (which is an indication of the earning power of the firm) into five components: tax burden, interest burden, profit margin, total asset turnover, and equity multiplier ratios. Empirical results exhibit that Dhaka Bank has performed best in every aspect and secured the first position due to highest average ROE. On the other hand, AB Bank is the least performer among all the banks due to its lowest average ROE. Finally, this study suggests that a company can have high ROE if it has high operating margin, lower interest, lower income tax, efficient use of assets and high use of debt in its capital structure.

Keywords: DuPont; ROE; Tax burden; Interest burden; EBIT margin; Asset utilization, Equity multiplier. (search for similar items in EconPapers)
Date: 2018
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