Financial Performance of Cement Industry in India Using Extended Dupont Approach

Abstract

The present study attempts to evaluate the financial performance of cement industry in India by choosing three leading cement companies like ACC, Gujarat Ambuja and UltraTech cement for the period 2006-2015 by using the extended DuPont approach. The extended DuPont approach has emphasized on analysis of Return on Equity (ROE) which disaggregates performance into five components: pre-interest/pretax margin, asset turnover, interest burden, tax efficiency and the equity multiplier. In the present study, we employed a two-step methodology: first, used extended DuPont approach to calculate return on equity of three companies and coefficient of correlation has been used to determine the relationship between the five components and return on equity. The results shows that return on equity of all three leading cement companies have declined drastically during 2006-2015. In the tough phase of cement industry all three leading companies have exhibited more or less similar financial performance during the study period. The contribution of five factors towards ROE is more or less similar among companies. The extended DuPont approach that we made for three leading cement companies in India emphasized on calculation of ROE is not relevant at all situations for taking rational economic decisions. In order to increase the rate of taking better economic decisions the results of extended DuPont approach can be compared across companies within an industry, between industries, or within a firm itself.