Question: The DuPont System is an expression which breaks ROE (Return on Equity) into three parts: 1. Operating efficiency 2. Asset use efficiency, 3. Financial leverage

The DuPont System is "an expression which breaks ROE (Return on Equity) into three parts: 1. Operating efficiency 2. Asset use efficiency, 3. Financial leverage" as defined by Calkoo. To determine Microsoft's Return on Equity, the return on sales (ROS), asset turnover and leverage will be used. Utilizing Microsoft's financials 2019 and 2018 the following calculations were made. Return on Equity = Net Income/Equity =39,240/180,178=22%. When wanting to know what's driving those numbers it's important to utilize the ROE 3-step DuPont formula which is Net Income/Sales (Return on Sales)* Sales/Assets (Asset Turnover)*Assets/equity (Leverage). Continuing to utilize Microsoft's financials the following determinations are made. Net Income/Sales= 39,240/18,213=2.15*Sales/Assets=18,213/272,702=0.07* Assets/equity=272,702/180,178=1.51. 2.15*0.07*1.51=22%.

When analyzing these numbers what does it show?

These are my instructions.

Formulate the expected financial returns and associated risks by completing the following calculations.
Calculate the Return on Equity (ROE) using the DuPont system.
Calculate the Constant Growth Stock Valuation (CGSV) and compare it to the current stock price.
Research your company's industry and evaluate what type(s) of capital constraints your company must consider in order to be competitive in the market. Explain the appropriate financial techniques that would be used in this evaluation.

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