Using DuPont analysis to assess the financial performance of the top 3 JSE listed companies in the food industry

Mishelle Doorasamy

doi:10.21511/imfi.13(2).2016.04

Abstract

This study attempts to measure the financial performance of the food industry taking the top three JSE listed companies Pioneer Foods, Tiger Brands and RCI for the period of 2013-2014. In order to achieve the objectives of this research, ratios such as return on equity (ROE), return on assets (ROA) have been calculated by applying the DuPont analysis. The DuPont analysis is an important tool to measure the operating performance of a firm (Sheela and Karthikeyan, 2012). The volatility of the stock market makes investment decisions a controversial issue for most investors. Investments of huge amounts of money need proper analysis in order to make an informed decision. Financial statements are indicators of the profitability and financial sustainability of the business. Ratios are tools used to quantify the risk element before making any strategic decisions, more especially, investment decisions. It has been reported to be one of the most important financial ratios, because it provides investors with a more comprehensive measure of performance (Demmer, 2015). A detailed financial analysis of all three companies using the DuPont system shows that investing in Tiger Brands would generate a higher return to shareholders than Pioneer Foods or RCI

Highlights

In publishing their financial statements, corporate organizations fully disclose matters concerning their operations to aid investors in making investment decisions (Blessing and Onoja, 2015)
The main objective of this study is to ascertain the role of financial statements on investment decision making
The 34.01 percent increase in basic earnings per share experienced by Pioneer Foods over the year puts it in a favorable position in relation to Tiger Brands and RCL Foods, whose basic earnings per share have decreased by 21.08 percent and 1115.56 percent, respectively

Summary

Introduction

In publishing their financial statements, corporate organizations fully disclose matters concerning their operations to aid investors in making investment decisions (Blessing and Onoja, 2015). Analysis and interpretation of financial statements is an important tool in assessing the company’s performance and gives investors an indication of the level of risk associated with that particular firm. For an investor, this is important and relevant information. Different ratios are used to measure different aspects of the business in terms of performance, liquidity, riskiness and profitability. Of these possible indicators, literature indicates that the most important measure of profitability and performance is the one which is calculated using DuPont analysis. Predicting changes in future return on assets, and Soliman (2008) cites DuPont components as yielding important information about the operating characteristics of a firm

Objectives

Methods

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Conclusion