Shadowing Practice: DuPont analysis explained - Learn English Speaking with Video
Creating lesson...
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Return on Equity, ROA Return on Assets, ROS Return on Sales.
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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.
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The very basics and the very essence of financial ratio analysis.
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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.
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This gives you a more holistic view of a company's performance than merely looking at one financial statement in isolation.
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ROE, or Return on Equity, is defined as net income divided by equity.
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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.
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ROE is a measure of the rate of return to shareholders.
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For return on equity, at first sight you would say, the higher this ratio is, the better.
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The return on equity financial ratio becomes more meaningful when you dive into its drivers.
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What made the ROE go up or down versus prior year, if you look at the same company?
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Why is the ROE for two companies in different industries, or even in the same industry, different?
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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.
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Let me walk you through these elements, ROS, Asset Turnover and Leverage, shortly.
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But first a trivia question.
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In which period did the DuPont Corporation start using the DuPont analysis?
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Was it the 1890s, the 1920s, the 1950s, or 1980s?
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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.
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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.
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Here's the three-part version of the DuPont analysis.
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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,
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hence they will cancel each other out when multiplied.
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For financial analysis, to split into three pieces makes a lot of sense.
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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.
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How many cents of profit are generated for every dollar of sales?
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The higher the ROS, the better.
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The second element is Asset Turnover, calculated as Sales divided by Assets, a measure of asset use efficiency.
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Can we maximize the amount of sales we generate with the assets that we have?
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A solid control of working capital is key here to decrease the denominator of assets.
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What are the terms you negotiate with your customers?
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Are you getting your customers to pay on time?
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Is your manufacturing and supply chain operation efficient, so the amount of inventory or stock along the way is minimized?
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All of those help to minimize the denominator.
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The first two elements together, ROS multiplied by Asset Turnover, form ROA .
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This ratio of ROA has many variations.
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Some companies measure ROIC , ROTC , ROCE or RONOA .
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These are all variations on the same theme.
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You look at the returns generated during a period, and compare them to the capital invested in the company to generate those returns.
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ROA is an indicator of business success, influenced by two factors, ROS or Margin Performance,
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and Asset Turnover, which you could call speed or velocity.
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The last element of the DuPont three-part equation is leverage, assets divided by equity.
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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.
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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.
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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.
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We have seen plenty of examples of companies that were too highly leveraged, going under in various financial crises over the years.
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Alright, that's the most commonly known three-step version of the DuPont formula.
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Are you ready for some more excitement?
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You can expand the DuPont formula to five steps if you want even more analytical insight
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into the drivers of where your ROE increase or decrease is coming from.
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The two elements on the right stay the same, asset turnover and leverage.
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However, ROS gets split into three elements.
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Net income divided by earnings before tax, which is called tax burden, earnings before tax divided by EBIT,
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called interest burden, and EBIT divided by sales, which is EBIT percentage.
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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,
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treasury and tax departments to manage.
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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.
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It is still in ubiquitous use, and it can help you to understand the drivers of performance for your company.
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So thank you very much to Donaldson Brown of the DuPont Corporation!
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On the Finance Storyteller YouTube channel, you can find lots of well-researched videos explaining business, finance and accounting topics.
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Please subscribe to the Finance Storyteller channel, and take the time to like the video and comment below.
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On average, I post one new video per week.
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If you subscribe to the channel, you will be the first to see it!
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Vocabulary and speaking notes for this lesson
This C1 speaking lesson is built on the video “DuPont analysis explained”. The speaker keeps coming back to these words: asset, return, Dupont, financial, element. This video has 62 sentences and 996 words to shadow. The speech runs for 6:15. The speaker talks at a natural 160 words per minute, close to everyday conversation. Only 78% of the words are among the 3,000 most common in English, so the vocabulary is demanding. 10 of its 62 sentences are questions, so it is good practice for question intonation and short answers.
Key vocabulary in this video
The 15 most advanced words in the video, with pronunciation and meaning:
| Word | Pronunciation | Meaning |
|---|---|---|
| turnover noun | /ˈtɝnoʊvɚ/ | The amount of money taken as sales transacted in a given period. |
| leverage noun | /ˈlɛv.(ə.)ɹɪd͡ʒ/ | A force compounded by means of a lever rotating around a pivot. |
| denominator noun | /dɪˈnɒmɪneɪtə(ɹ)/ | The number or expression written below the line in a fraction (such as 2 in ½). |
| multiply verb | /ˈmʌltɪplaɪ/ | To increase the amount, degree or number of (something). |
| fraction noun | /ˈfɹæk.ʃən/ | A part of a whole, especially a comparatively small part. |
| trivia noun | /ˈtɹɪvi.ə/ | Insignificant trifles of little importance, especially items of unimportant information. |
| shareholder noun | /ˈʃɛəˌhəʊl.də(ɹ)/ | One who owns shares of stock in a corporation. |
| minimize verb | /ˈmɪn.ɪˌmaɪz/ | To make (something) smaller or as small as possible; shrink; reduce. |
| indicator noun | /ˈɪn.dɪˌkeɪ.tə(ɹ)/ | A pointer or index that indicates something. |
| subscribe verb | /səbˈskɹaɪb/ | To write (one’s name) at the bottom of a document; to sign (one's name). |
| variation noun | /ˌvɛəɹiˈeɪʃn̩/ | The act of varying; a partial change in the form, position, state, or qualities of a thing. |
| holistic adjective | /hoʊˈlɪs.tɪk/ | Related to holism. |
| mathematically adverb | According to or using mathematics. | |
| numerator noun | /ˈnuː.məɹˌeɪ̯.təɹ/ | The number or expression written above the line in a fraction (such as 1 in ½). |
| profitability noun | /ˌpɹɑ.fɪ.təˈbɪl.ɪ.ti/ | The state or quality of being profitable; capacity to make a profit. |
Phrasal verbs you will hear
| Word | Meaning |
|---|---|
| come up with verb | To manage to produce, deliver, or present (something) by inventing, creating, thinking of, or obtaining it. |
| fit together verb | To put the appropriate parts of (something) into a whole; to combine pieces that go together to create a finished object. |
| go under verb | To descend into a body of water; to founder. |
| go up verb | To move upwards. |
Sentences worth repeating
Short, complete lines from the video that you can reuse in everyday conversation:
- 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?
Grammar in this video
The structures the speaker uses most, with the exact words from the video:
| Structure | In the video |
|---|---|
| Passive voice be + past participle — the focus is on what happens, not who does it | is defined · are logged · are generated |
| Relative clauses who / which + clause — extra information about a person or thing | Sales, which is · tax, which is |
| Present perfect have/has + past participle — a past action that still matters now | has generated · have seen |
Pronunciation to watch
- The “sh” and “zh” sounds: fraction /ˈfɹæk.ʃən/, shareholder /ˈʃɛəˌhəʊl.də(ɹ)/, variation /ˌvɛəɹiˈeɪʃn̩/, negotiate /nəˈɡəʊ.ʃi.eɪt/, isolation /ˌaɪsəˈleɪʃən/
- Long words — get the stress right: denominator /dɪˈnɒmɪneɪtə(ɹ)/, indicator /ˈɪn.dɪˌkeɪ.tə(ɹ)/, numerator /ˈnuː.məɹˌeɪ̯.təɹ/, profitability /ˌpɹɑ.fɪ.təˈbɪl.ɪ.ti/, ubiquitous /juːˈbɪkwɪtəs/
How to practise with this video
- Listen to the whole video once without speaking and note the words you do not know.
- Start at 0.75× speed, shadow it sentence by sentence, then go back to normal speed once it feels easy.
- Record yourself and compare with the original, paying attention to words like turnover, leverage, denominator.
What is the Shadowing Technique?
Shadowing is a science-backed language learning technique originally developed for professional interpreter training and popularized by polyglot Dr. Alexander Arguelles. The method is simple but powerful: you listen to native English audio and immediately repeat it out loud — like a shadow following the speaker with just a 1–2 second delay. Unlike passive listening or grammar drills, shadowing forces your brain and mouth muscles to simultaneously process and reproduce real speech patterns. Research shows it significantly improves pronunciation accuracy, intonation, rhythm, connected speech, listening comprehension, and speaking fluency — making it one of the most effective methods for IELTS Speaking preparation and real-world English communication.