Movements of Return on Equity of Thai Big Market Capitalization Companies: Revisiting the DuPont Ratio

Abstract

This study aims to examine the causal relationship between the net profit margin, total asset turnover, equity multiplier, and return on assets and the return on equity of big market capitalization companies listed on the Stock Exchange of Thailand (the SET). Due mainly to data availability, 93 big market cap companies listed on listed SET 100 index constituents are used as a sample set. The study period is between 2015 and 2019. Statistics used include mean, standard deviation, maximum, minimum, skewness, kurtosis, log transformation and multiple regression. The findings show that a combination of return on assets and equity multiplier outperforms a combination of net profit margin, total asset turnover, and equity multiplier (traditional components of return on equity) in explaining a movement of return on equity of the Thai big market cap companies. This study documents the use of DuPont analysis in the Thai context, where such analysis appears to be few. Moreover, its findings can provide useful insights to financial managers and/or investors regarding the optimal determinants of ROE of Thai companies and contribute to its greater impact on ROE, or shareholders’ wealth.