The influence of social media usage on the DuPont method of analysis

• Published date: 01 October 2021
• Author: Nathan H. Jeppson,John A. Ruddy,David F. Salerno
• Date: 01 October 2021
• DOI: http://doi.org/10.1002/jcaf.22507

Received:  FebruaryRevised:  June Accepted:  June 

DOI: ./jcaf.

RESEARCH ARTICLE

The influence of social media usage on the DuPont method

of analysis

Nathan H. JeppsonJohn A. RuddyDavid F. Salerno

Correspondence

NathanH. Jeppson,  W. University

ParkwayMS , Orem, Utah -.

Email:nathan.jeppson@uvu.edu

Abstract

In this study, we provide new evidence regarding return on equity and its com-

ponents for firms recognized for their effective use of social media compared to

firms that use social media to a lesser extent. Using the Russell 3000 firms, we

compare firms’ return on equity and sub components using difference in means

tests and regression analysis. Wefind that f irms recognizedfor their effective use

of social media generate higher return on equity than other firms. Furthermore,

when testing the disaggregation components, we find that the increased return

on equity exhibited by firms using social media effectively is due to higher asset

turnover and lower interest burden. We also find that such firms experience a

higher tax burden.

KEYWORDS

DuPont method, firm profitability, return on equity, social media

1 INTRODUCTION

Corporations are increasingly cognizant of the impact

and effects of social media on all areas of their opera-

tions (Tonello, ). Through social media customers,

investors, regulators, and other stakeholders quickly and

transparently communicate directly with the management

of a corporation (Helme-Guizon & Magnoni, ). The

information shared through social media channels can

have far-reaching effects on the impression that all stake-

holders have regardinga firm (Rishika et al., ). Because

of the significant effects of social media on a firm, its

impacts on firm profitability are of great concern to man-

agers and shareholders.

Since its introduction over  year ago, the DuPont

method has been used extensively to analyze company

profitability (Fridson & Alvarez, ). While the finan-

cial ratio return on equity (ROE) provides important infor-

mation regarding the economic performance of a firm, the

DuPont method separates ROE into several key elements.

The component parts include profit margin, asset turnover,

financial leverage and other administrative costs includ-

ing interest and taxes. Prior research has shown that the

DuPont method is utilized and valued by market partici-

pants (Soliman, ).

In contrast to the DuPont method’s venerable history,

the concept of social media is relatively new. According to

Investopedia, “social media is a technology that facilitates

the sharing of ideas, thoughts and information through

the building of virtual networks and communities.” Social

media is internet based and as a result, allows for imme-

diate electronic communication. In a business context, the

information can include results, financial information and

news releases. Social media has transformed the way busi-

nesses interact with the environment in which they oper-

ate (Aral et al., ). As of , % of Fortune  com-

panies tweeted, % had a Facebook presence and % uti-

lized a YouTubeaccount (Barnes et al., ).

This research adds to the literature by utilizing the

DuPont method of analysis to determine which compo-

nents of ROE are affected by the successful use of social

media. Prior research demonstrates that the utilization

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