Analysis of The Interrelation between DuPont ModelIndicators and ‎The Cost of Fixed Assets in TheContext of Real Investment Growth

Abstract

In this article, the authors set out to test the hypothesis that a high Return on Equity can serve ‎not as an indicator of past performance but also as a factor of growth in real investment.‎

To this end, a primary sample of 50 enterprises in the Ukrainian electrotechnical industry was ‎generated. The impact of the capital structure and financing policy on investment activity was ‎taken into account using the Debt-to-Equity Ratio and the Debt-to-Assets Ratio as indicators. ‎Fixed Assets growth (residual value) was conditionally accepted as an indicator of real ‎investment as it reflects investments in production capacity. The object of the study was ‎selected enterprises that did not perform asset revaluation.‎

The authors conclude that the hypothesis of a direct interrelation between the parameters of ‎the DuPont model and the value of Fixed Assets was not confirmed for the studied ‎enterprises. The lack of correlation between Return on Equity (ROE) and Fixed Asset growth ‎suggests that high ROE is not necessarily accompanied by technological development. The ‎increase in this indicator for the sample of enterprises was mainly due to an increase in ‎Financial Leverage rather than to investments in Fixed Assets. ROE, in turn, is not a ‎determining factor of technological development in the electrotechnical industry of Ukraine ‎under conditions of uncertainty. At the same time, the authors concede that there are factors ‎that have not been considered by these researchers. The problem requires additional research ‎and further analysis‎.