Investments, tenth edition

19.3 

  Choosing a Benchmark 

 

We have discussed how to calculate 

the principal financial ratios. To evalu-

ate the performance of a given firm, 

however, you need a benchmark to 

which you can compare its ratios. 

One obvious benchmark is the ratio 

for the same company in earlier years. 

For example,  Figure 19.3  shows HD’s 

return on assets, profit margin, and 

asset turnover ratio for the last few 

years. You can see there that a good 

part of the decline in ROA between 

2005 and 2009 was due to HD’s fall-

ing profit margin. In 2008, margin 

improved but turnover fell, resulting 

in a further drop in ROA.   

0

5

10

15

20

25

30

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Ratio

ROA

Turnover 

× 10

Profit Margin

 Figure 19.3 

DuPont decomposition for Home Depot  

bod61671_ch19_635-677.indd   653

bod61671_ch19_635-677.indd   653

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7/17/13   4:13 PM

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