Financial performance measurement of commercial bank in Bangladesh: An application of DuPont analysis

What the paper says

The financial performance of commercial banks plays a crucial role in ensuring the stability and growth of a country’s financial system. Analyzing financial ratios is a sensible method of assessing a bank’s performance. This study aims to analyze the financial condition and evaluate the performance of eight selected commercial banks in Bangladesh through the application of the DuPont analysis framework. This study attempts to measure the financial performance of selected Bangladeshi private, Public and Foreign commercial banks for the period (2019–2023) through using the DuPont model which is an important tool for measuring profitability and judging the financial performance of any financial entity. ROE, a measure of the bank’s earning capacity, is broken down into five parts under the modified DuPont model: tax burden, interest burden, profit margin, total asset turnover, equity multiplier ratios, and financial management techniques and strategic choices. The DuPont model provides a detailed breakdown of Return on Equity (ROE) into its core components — net profit margin, asset turnover, and financial leverage — offering deeper insight into the internal drivers of profitability and efficiency. By utilizing financial data over a defined period, this research identifies the key strengths and weaknesses in the performance structures of the banks studied. The findings are expected to reveal significant variations in ROE components among the banks, highlighting which operational or financial strategies contribute most to performance. This paper contributes to the literature by providing empirical evidence on the applicability of DuPont analysis in the Bangladeshi banking sector and offers valuable insights for policymakers, investors, and financial managers in making informed strategic decisions.