Shadowing Practice: DuPont analysis explained - Learn English Speaking with Video

Return on Equity, ROA Return on Assets, ROS Return on Sales.

This video takes you through the financial ratios of the ROE formula, the ROA formula, the ROS formula, asset turnover and leverage, and shows how they fit together.

The very basics and the very essence of financial ratio analysis.

The beauty of financial ratios is that they link together information from two of the three main financial statements, the income statement or profit and loss statement, and the balance sheet.

This gives you a more holistic view of a company's performance than merely looking at one financial statement in isolation.

ROE, or Return on Equity, is defined as net income divided by equity.

In other words, the net profit that the company has generated during a year, divided by the book value of the shareholder capital invested in the company.

ROE is a measure of the rate of return to shareholders.

For return on equity, at first sight you would say, the higher this ratio is, the better.

The return on equity financial ratio becomes more meaningful when you dive into its drivers.

What made the ROE go up or down versus prior year, if you look at the same company?

Why is the ROE for two companies in different industries, or even in the same industry, different?

This is where financial analysts owe a big thank you to the DuPont Corporation, for coming up with the idea of breaking ROE into three distinct elements.

Let me walk you through these elements, ROS, Asset Turnover and Leverage, shortly.

But first a trivia question.

In which period did the DuPont Corporation start using the DuPont analysis?

Was it the 1890s, the 1920s, the 1950s, or 1980s?

When you are logged into YouTube and are watching this video from a computer, then please click the voting card on the top right to submit your vote.

I will explain you first what the DuPont formula is, and then share the answer to the quiz question towards the end of the video.

Here's the three-part version of the DuPont analysis.

Mathematically, this split makes little sense, as you are multiplying fraction bars where the denominator in one of the fractions is the numerator in another fraction,

hence they will cancel each other out when multiplied.

For financial analysis, to split into three pieces makes a lot of sense.

The first element, ROS or Return on Sales, is Net Income divided by Sales, which is an indicator of the relative profitability or operating efficiency.

How many cents of profit are generated for every dollar of sales?

The higher the ROS, the better.

The second element is Asset Turnover, calculated as Sales divided by Assets, a measure of asset use efficiency.

Can we maximize the amount of sales we generate with the assets that we have?

A solid control of working capital is key here to decrease the denominator of assets.

What are the terms you negotiate with your customers?

Are you getting your customers to pay on time?

Is your manufacturing and supply chain operation efficient, so the amount of inventory or stock along the way is minimized?

All of those help to minimize the denominator.

The first two elements together, ROS multiplied by Asset Turnover, form ROA .

This ratio of ROA has many variations.

Some companies measure ROIC , ROTC , ROCE or RONOA .

These are all variations on the same theme.

You look at the returns generated during a period, and compare them to the capital invested in the company to generate those returns.

ROA is an indicator of business success, influenced by two factors, ROS or Margin Performance,

and Asset Turnover, which you could call speed or velocity.

The last element of the DuPont three-part equation is leverage, assets divided by equity.

Whether they should be high or low is a much discussed question among business people, finance people, and academics, and I don't think there is a definitive answer.

On the one side, if you can borrow money, take on debt, at low interest rates, and put this money to productive use, you could grow the company faster, and generate higher returns.

On the other side, if debt is very high compared to the equity in the company, you could increase the risk profile, and decrease your buffer against bankruptcy.

We have seen plenty of examples of companies that were too highly leveraged, going under in various financial crises over the years.

Alright, that's the most commonly known three-step version of the DuPont formula.

Are you ready for some more excitement?

You can expand the DuPont formula to five steps if you want even more analytical insight

into the drivers of where your ROE increase or decrease is coming from.

The two elements on the right stay the same, asset turnover and leverage.

However, ROS gets split into three elements.

Net income divided by earnings before tax, which is called tax burden, earnings before tax divided by EBIT,

called interest burden, and EBIT divided by sales, which is EBIT percentage.

In a lot of companies, improving the EBIT percentage and increasing the asset turnover are important targets for the management team, whereas the other elements are for the finance,

treasury and tax departments to manage.

To close the loop on the DuPont formula, the answer to the trivia question is that this financial ratio analysis method came into use in the 1920s.

It is still in ubiquitous use, and it can help you to understand the drivers of performance for your company.

So thank you very much to Donaldson Brown of the DuPont Corporation!

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Vocabulario y notas de pronunciación para esta lección

Esta lección de conversación de nivel C1 se basa en el vídeo “DuPont analysis explained”. Las palabras que más se repiten: asset, return, Dupont, financial, element. Este vídeo tiene 62 frases y 996 palabras para practicar shadowing. La parte hablada dura 6:15. El hablante habla a un ritmo natural de unas 160 palabras por minuto, cercano a una conversación cotidiana. Solo el 78 % de las palabras está entre las 3.000 más comunes del inglés, por lo que el vocabulario es exigente. 10 de sus 62 frases son preguntas, así que sirve para practicar la entonación de las preguntas y las respuestas cortas.

Vocabulario clave de este vídeo

Las 15 palabras más avanzadas del vídeo, con su pronunciación y significado:

Palabra	Pronunciación	Significado
turnover sustantivo	/ˈtɝnoʊvɚ/	cifra de negocios
leverage sustantivo	/ˈlɛv.(ə.)ɹɪd͡ʒ/	palanca, palanqueo
denominator sustantivo	/dɪˈnɒmɪneɪtə(ɹ)/	denominador
multiply verbo	/ˈmʌltɪplaɪ/	multiplicar, amochiguar
fraction sustantivo	/ˈfɹæk.ʃən/	fracción
trivia sustantivo	/ˈtɹɪvi.ə/	trivia
shareholder sustantivo	/ˈʃɛəˌhəʊl.də(ɹ)/	accionista, accionario
minimize verbo	/ˈmɪn.ɪˌmaɪz/	minimizar, achicar
indicator sustantivo	/ˈɪn.dɪˌkeɪ.tə(ɹ)/	señalizador
subscribe verbo	/səbˈskɹaɪb/	suscribirse, subscribirse
variation sustantivo	/ˌvɛəɹiˈeɪʃn̩/	variación
holistic adjetivo	/hoʊˈlɪs.tɪk/	holístico
mathematically adverbio		matemáticamente
numerator sustantivo	/ˈnuː.məɹˌeɪ̯.təɹ/	numerador
profitability sustantivo	/ˌpɹɑ.fɪ.təˈbɪl.ɪ.ti/	rentabilidad, lucratividad

Phrasal verbs que vas a escuchar

Palabra	Significado
come up with verbo	ingeniar, ingeniarse
go under verbo	hundirse, irse a pique
go up verbo	subir

Frases que vale la pena repetir

Frases cortas y completas del vídeo que puedes reutilizar en la conversación diaria:

What are the terms you negotiate with your customers?
Are you getting your customers to pay on time?
Are you ready for some more excitement?

Gramática en este vídeo

Las estructuras que más usa el hablante, con las palabras exactas del vídeo:

Estructura	En el vídeo
Voz pasiva be + participio pasado — importa lo que ocurre, no quién lo hace	is defined · are logged · are generated
Oraciones de relativo who / which + oración — información extra sobre una persona o cosa	Sales, which is · tax, which is
Present perfect have/has + participio pasado — una acción pasada que sigue importando ahora	has generated · have seen

Pronunciación a tener en cuenta

Los sonidos de “sh” y “zh”: fraction /ˈfɹæk.ʃən/, shareholder /ˈʃɛəˌhəʊl.də(ɹ)/, variation /ˌvɛəɹiˈeɪʃn̩/, negotiate /nəˈɡəʊ.ʃi.eɪt/, isolation /ˌaɪsəˈleɪʃən/
Palabras largas — cuida el acento: denominator /dɪˈnɒmɪneɪtə(ɹ)/, indicator /ˈɪn.dɪˌkeɪ.tə(ɹ)/, numerator /ˈnuː.məɹˌeɪ̯.təɹ/, profitability /ˌpɹɑ.fɪ.təˈbɪl.ɪ.ti/, ubiquitous /juːˈbɪkwɪtəs/

Sonidos difíciles para hispanohablantes:

/v/ — no es /b/: los dientes tocan el labio inferior: turnover /ˈtɝnoʊvɚ/, leverage /ˈlɛv.(ə.)ɹɪd͡ʒ/, trivia /ˈtɹɪvi.ə/, variation /ˌvɛəɹiˈeɪʃn̩/, definitive /dɪˈfɪn.ɪ.tɪv/
/z/ — sonora, no /s/: minimize /ˈmɪn.ɪˌmaɪz/, maximize /ˈmæksəmaɪz/, quiz /kwɪz/
/h/ — una aspiración suave, no la “j”: shareholder /ˈʃɛəˌhəʊl.də(ɹ)/, holistic /hoʊˈlɪs.tɪk/

Cómo practicar con este vídeo

Escucha el vídeo entero una vez sin hablar y anota las palabras que no conoces.
Empieza a velocidad 0,75×, haz shadowing frase por frase y vuelve a la velocidad normal cuando te resulte fácil.
Grábate y compara con el original, prestando atención a palabras como turnover, leverage, denominator.

¿Qué es la Técnica de Shadowing?

Shadowing es una técnica de aprendizaje de idiomas respaldada por la ciencia, desarrollada originalmente para la formación de intérpretes profesionales y popularizada por el políglota Dr. Alexander Arguelles. El método es simple pero poderoso: escuchas audio en inglés nativo y lo repites en voz alta de inmediato, como una sombra que sigue al hablante con solo 1-2 segundos de retraso. A diferencia de la escucha pasiva o los ejercicios de gramática, el shadowing obliga a tu cerebro y músculos de la boca a procesar y reproducir simultáneamente patrones de habla reales. Las investigaciones muestran que mejora significativamente la precisión de la pronunciación, la entonación, el ritmo, el habla conectada, la comprensión auditiva y la fluidez al hablar, convirtiéndola en una de las metodologías más efectivas para la preparación del IELTS Speaking y la comunicación en inglés en el mundo real.

Técnica de shadowing: lee la guía completa paso a paso →

Shadowing Practice: DuPont analysis explained - Learn English Speaking with Video

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