A company's profitability prediction based on industry-adjusted DuPont analysis: The application of US methodology to Russian companies

Abstract

The research analyzes the applicability of industry-adjusted DuPont model, developed for the US market, for future RNOA prediction in the Russian market. Research is concentrated on analyzing time-series patterns and persistence of abnormal components of financial ratios and the influence on changes in future profitability. Research supports the assumption of industry-average reversion of financial ratios, indicating that ratios revert to industry median level, and shows that abnormal ATO time pattern is more persistent than abnormal PM. This lead to the conclusion that understanding the source of current abnormal profitability is important for future profitability predictions, and abnormal profitability based on abnormal PM lead to the future correction in the coefficient. All received results are comparable in the Russian and US market, implying that industry-adjusted DuPont model is applicable for future RNOA prediction in the Russian market.