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Could Profitability, Activity and Use of Equity Finance Increasing DuPont Model of Return on Equity? Jordanian Case

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  • Lina Hani Warrad

    (Department of Accounting, Applied Science Private University, Amman, Jordan,)

  • Mahmoud Nassar

    (Department of Accounting, Applied Science Private University, Amman, Jordan,)

Abstract

Performance evaluation is very fundamental to make a right decision. Profitability analysis is very important factor in the performance evaluation of all companies, but it is not enough just computing return on equity (ROE) to evaluate performance. It is very important to reveal the factors which are having impact on ROE. For this reason DuPont Model is considered to be the essential performance indicator in many studies. Theoretically there is a positive relationship between the DuPont Model of ROE with its three components, total asset turnover, net profit margin, and financial leverage, and a negative relationship with the average total equity. The current study applied on the Jordanian industrial sectors for the period from 2008 to 2015 to approve the previous fact. Eviews software used, stability diagnostics, recursive estimates, Cusum test, vector auto regression model, ordinary lease square, Wald coefficient test, and regression analysis applied. The results revealed that there is a significant effect of total asset turnover on DuPont Model of ROE, there is a significant effect of net profit margin on DuPont Model of ROE, and finally there is no significant effect of financing leverage on DuPont Model of ROE. On the other hand, there is a significant effect of total asset turnover and net profit margin and financing leverage jointly on DuPont Model of ROE.

Suggested Citation

  • Lina Hani Warrad & Mahmoud Nassar, 2017. "Could Profitability, Activity and Use of Equity Finance Increasing DuPont Model of Return on Equity? Jordanian Case," International Review of Management and Marketing, Econjournals, vol. 7(3), pages 35-41.
    • Handle: RePEc:eco:journ3:2017-03-04
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    References listed on IDEAS

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    1. Georgeta VINTILA & Floriniþa DUCA, 2012. "The Impact of Financial Leverage to Profitability Study of Companies Listed in Bucharest Stock Exchange," Ovidius University Annals, Economic Sciences Series, Ovidius University of Constantza, Faculty of Economic Sciences, vol. 0(1), pages 1741-1744, May.
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    Cited by:

    1. Farouq Altahtamouni & Ahoud Alfayhani & Amna Qazaq & Arwa Alkhalifah & Hajar Masfer & Ryoof Almutawa & Shikhah Alyousef, 2022. "Sustainable Growth Rate and ROE Analysis: An Applied Study on Saudi Banks Using the PRAT Model," Economies, MDPI, vol. 10(3), pages 1-12, March.
    2. Yllka Ahmeti & Albina Kalimashi & Ardi Ahmeti & Skender Ahmeti, 2024. "Factors Affecting Sustainable Growth Rate and its Impact on Financial Performance of Kosovo Manufacturing Companies," Economic Studies journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 4, pages 61-74.

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    More about this item

    Keywords

    Total Asset Turnover; Net Profit Margin; Financial Leverage; DuPont Model of Return on Equity; Amman Stock Exchange;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • M14 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Corporate Culture; Diversity; Social Responsibility

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