ASSESSING THE OPERATIONAL EFFICIENCY AND PROFITABILITY GROWTH DRIVERS OF BYD BASED ON THE DUPONT MODEL

INTERNATIONAL SYMPOSIUM “ADVANCED RESEARCH IN ECONOMICS AND BUSINESS MANAGEMENT”, SEPTEMBER 19, 2025 570 ASSESSING THE OPERATIONAL EFFICIENCY AND PROFITABILITY GROWTH DRIVERS OF BYD BASED ON THE DUPONT MODEL He Lulu Master of Financial Management, Belarusian National Technical University https://doi.org/10.5281/zenodo.17272714 Abstract. The study presents a comprehensive assessment of the financial performance of BYD Co., Ltd. for 2020-2024, focusing on its operating efficiency and key drivers of its profitability. Making use of the expanded five-step DuPont framework, the present study decomposes the Return on Equity (ROE) of the company to identify the strategic factors underpinning its phenomenal growth in the competitive new energy vehicle (NEV) industry. The analysis suggests that BYD's gigantic growth in ROE was primarily fueled by a whopping enhancement in asset turnover, reflecting enhanced operating efficiency, and a strategic increase in financial leverage to fuel growth, while margins were a second driver. Keywords: DuPont Model, Profitability, Operating Efficiency, BYD, Return on Equity (ROE), Financial Analysis, New Energy Vehicle. The global automobile market is transforming with a paradigm shift driven by the quick pace of green transport and electrification. At the core of this revolutionary transformation is BYD Co., Ltd. (BYD), the top worldwide market leader with outstanding performance in the production and sales of new energy vehicles (NEVs). The accelerating growth of the company raises fundamental questions for investors, managers, and researchers about its sustainability and the financial dynamics that are driving its success. While top-line growth percentages are well reported, it takes some digging to find out the quality of such growth and the drivers of shareholder value creation. Classic profitability ratios like net profit or earnings per share reflect only a limited picture of the performance of a company. A more solid process is to examine the Return on Equity (ROE), an exhaustive indicator that reflects to what extent a company is able to create profits from the investment of its shareholders. But the ROE value alone does not reflect how the return is created. DuPont model offers a powerful structure for this purpose by dissecting ROE into its most basic constituent elements: profitability, operating efficiency, and financial leverage [2]. The dissection allows for thorough scrutiny of a company's strategic shortcomings and strengths. This paper attempts to quantify the operational effectiveness of BYD and identify its key drivers of profitability expansion from FY 2020 through FY 2024. Employing an extended fivestep DuPont analysis, the present study diverges from the standard three-step method in a bid to gain a more differentiated view that maintains operational profitability separate from the influence of interest and tax expenses. The research will seek to ascertain the following: What were the key elements that resulted in the alteration of BYD's ROE over the past five years? How has operating efficiency, measured by asset turnover, altered during its period of spectacular growth? To what extent has financial planning, and in this instance use of leverage, contributed to its returns to shareholders? INTERNATIONAL SYMPOSIUM “ADVANCED RESEARCH IN ECONOMICS AND BUSINESS MANAGEMENT”, SEPTEMBER 19, 2025 571 The findings of this research will provide valuable input to stakeholders. For investors, it offers a detailed view into the financial health and strategic aspiration of a significant player in the EV market. For management, it can be used to highlight strategic possibilities for areas of operations, cost control, and capital structure. For academics, it offers a detailed case study of the application of the DuPont framework with a high-growth company in a strategically important and rapidly evolving industry. DuPont analysis was first developed by DuPont Corporation during the 1920s as a tool of management internal control and has come to be one of the cornerstones of financial analysis today. Its primary strength is that it can dissect ROE, providing a picture of a company's performance through linkage of the balance sheet and the income statement. The traditional three-step model is expressed as follows: Net Profit Margin (Net Income / Revenue): Reveals the company's capability to maintain costs in check and generate profit per dollar of sales. The more elevated the margin, the more profitable it is in efficiency. Asset Turnover (Revenue / Average Total Assets): Compares the firm's effectiveness in utilizing its asset base in generating revenue. This is an important operational effectiveness measure. Financial Leverage (Average Total Assets / Average Shareholder Equity): Also known as the equity multiplier, the ratio indicates the extent to which a company uses debt to finance assets. High leverage above average is likely to bring improved returns but increases financial risk. Although the three-step model is insightful, it pairs operational profitability with the impact of financing and tax strategies within the Net Profit Margin factor. In a bid to circumvent this drawback, the model can be transformed into a five-step dissection, which provides an improved view of underlying operational performance [3]. Latest studies into corporate financial performance have come to utilize this extended model to present more insights, especially in cutting-edge industries like banking and technology [3]. The five-step model is further expanded to analyze the Net Profit Margin as well: Tax Burden (Net Income / Earnings Before Tax [EBT]): Indicates the proportion of pretax profit that remains with the firm after deductions in the form of tax. Interest Burden (EBIT / EBT): Is the impact of paying interest on pre-tax earnings. A lower ratio is indicative of a greater debt financing burden. EBIT Margin (Earnings Before Interest and Taxes [EBIT] / Revenue): Also referred to as operating margin, it is an unadulterated measure of the profitability of the business of a firm at its essence prior to the impact of its capital structure and tax environment. The NEV industry is characterized by a high degree of capital intensity, fast-moving technological change, and intense competition. Analysis of financial performance in the industry is critical in a bid to understand corporate strategy and long-term viability. Recent research has determined the unique financial characteristics of NEV firms. For instance, Zhang and Li (2023) used panel data on Chinese NEV companies and found that R&D intensity, firm size, and government subsidies played an important role in determining profitability [2]. Their study INTERNATIONAL SYMPOSIUM “ADVANCED RESEARCH IN ECONOMICS AND BUSINESS MANAGEMENT”, SEPTEMBER 19, 2025 572 demonstrates that it is important to look beyond numbers like profit when attempting to understand the complex interaction of variables underpinning financial outcomes. While informative, macro-industry study is of greater value when complemented by accurate firm-level analysis using frameworks like the DuPont model. Applying the model to BYD, the paper adds to existing research by providing a longitudinal, multi-factorial study of a leader in a market at its most critical growth stage. This study adopts a quantitative and longitudinal research design. The major approach is the computation of the three-step and five-step DuPont models to examine the financial data of BYD Co., Ltd. for 2020-2024. The financial data, including items from the Income Statement and Balance Sheet, were derived from BYD's original annual financial reports, compiled by a reliable financial data service provider [1]. In order to apply the DuPont analysis, key financial ratios were first obtained from BYD's financial reports for 2020-2024. The breakdown of each of the 3-step and 5-step DuPont models step by step is depicted in the table below. The time used for this calculation is 2021-2024 since the average of assets and equity for 2020 would require 2019 data. Table 1: DuPont model decomposition for BYD (2021-2024) Financial Metric / Ratio 2024 2023 2022 2021 A. Income Statement Data Revenue 777.1 602.3 424.1 216.1 EBIT (EBT + Interest Expense) 51.77 39.1 22.39 6.43 EBT (Profit Before Tax) 49.68 37.27 21.08 4.52 Net Income (Attributable to Parent) 40.25 30.04 16.62 3.05 B. Balance Sheet Data (Average) Average Total Assets 7314.5 5867 3948. 5 2484 Average Shareholder Equity (Parent) 1620.5 1249 1030. 4 759.7 C. 3-Step DuPont Analysis 1. Net Profit Margin (%) 5.18% 4.99% 3.92 % 1.41 % 2. Asset Turnover 1.06 1.03 1.07 0.87 3. Financial Leverage 4.51 4.7 3.83 3.27 Calculated ROE (3-Step) (%) 24.84% 22.95% 15.93 % 4.01 % D. 5-Step DuPont Analysis 1. Tax Burden 0.81 0.806 0.788 0.675 2. Interest Burden 0.96 0.952 0.942 0.703 3. EBIT Margin (%) 6.66% 6.49% 5.28 % 2.97 % 4. Asset Turnover 1.06 1.03 1.07 0.87 5. Financial Leverage 4.51 4.7 3.83 3.27 Calculated ROE (5-Step) (%) 24.84% 22.95% 15.93 % 4.01 % INTERNATIONAL SYMPOSIUM “ADVANCED RESEARCH IN ECONOMICS AND BUSINESS MANAGEMENT”, SEPTEMBER 19, 2025 573 The standout observation is the phenomenal and sustained rise in BYD's ROE, from a low of 4.01% in 2021 to a high of 24.84% in 2024. That is more than a six-fold increase in value creation of shareholder return within three years. This trend indicates an intensified ability of the company to create value and is directly related to its skyrocketing growth in the NEV space. The subsequent analysis deconstructs this remarkable growth. Net Profit Margin: BYD's Net Profit Margin is increasing, moving from 1.41% in 2021 to 5.18% in 2024. This indicates that the company is better at converting its massive revenue growth into real profit. The expansion can be attributed to manufacturing economies of scale, more control over its vertically integrated supply chain, and a healthy product mix with more profitable cars. However, relative to the magnitude of the ROE gain, the expansion in margins, although huge, was not the primary contributor. The margins remain relatively thin, characteristic of the highly competitive and capital-hungry automobile business. Asset Turnover: This is the focal point in BYD's story of operational efficiency. The Asset Turnover ratio, an indicator of how assets are being used to generate sales, improved from 0.87 in 2021 to a strong and high figure above 1.0 from 2022 (1.07 in 2022, 1.03 in 2023, and 1.06 in 2024). It is unusual for a heavy manufacturing company to have an asset turnover ratio of more than 1.0, and what it implies is that BYD is generating more than one dollar of revenue on each dollar of assets that it employs. Such high efficiency can likely be directly credited to its massive size, high factory utilization ratios, and stringent working capital management and supply chain. The evidence clearly shows that operational efficiency remains BYD's most and best driver of its lofty ROE. Financial Leverage: The Financial Leverage ratio consistently increased from 3.27 in 2021 to 4.70 in 2023, before slightly falling to 4.51 in 2024. This trend clearly suggests that BYD increasingly used borrowings to finance its fast accumulation of production capacity, R&D, and global market presence. While this strategy successfully capitalized on the returns of its efficient operations, it also increases the firm's financial risk profile. The modest slowdown in 2024 may mean transitioning to a balanced capital profile and company maturity. The 5-step model provides further insights, particularly on the components of the profit margin. EBIT Margin: The EBIT Margin, representing operating core profitability, materially increased from 2.97% in 2021 to 6.66% in 2024. This confirms profitability increases resulting from core business operations and not from accounting or tax management constructs alone. The increase in the EBIT margin reflects BYD's increasing ability to exercise its costs of operation and production effectively even while expanding rapidly. Interest and Tax Burdens: The Interest Burden was similarly high and reasonably stable (around 0.94-0.96) for 2022-2024, indicating the costs of borrowing did not disproportionately annihilate operating profits during these years, perhaps due to good terms of borrowing. The Tax Burden also settled down, which may indicate a stable tax regime. These were not heavy contributors to the variability in the change in ROE in comparison to the underlying operational enhancements. This study assessed the operating efficiency and drivers of profitability of BYD Co., Ltd. between 2020 and 2024 on the basis of a DuPont analysis over an extended period. The results conclusively show that the phenomenal ROE result was propelled by two complementing forces: an astonishing improvement in operating effectiveness, as evidenced by a high and stable asset turnover ratio, and, more significantly, an enormous increase in financial leverage to fund rapid INTERNATIONAL SYMPOSIUM “ADVANCED RESEARCH IN ECONOMICS AND BUSINESS MANAGEMENT”, SEPTEMBER 19, 2025 574 expansion. While profit margins have risen, they have played a secondary role to the dominant impact of asset utilization. The main contribution of the paper is the quantitative evidence of BYD's operationsdriven business model. It verifies that the company is not merely a growth story but also a story of efficiency. Nevertheless, it also highlights the inherent risks in its leveraged financial strategy. A limitation of the current study is its sole reliance on historical financial data, without adjustment for qualitative factors such as brand, technological leadership, or geopolitical risks. A subsequent study can complement this effort by creating a comparative DuPont analysis between BYD and its leading global peers such as Tesla and Volkswagen. The inclusion of non-financial metrics, such as ESG performance, in the analysis could provide a richer view of the company's potential for long-term value creation. REFERENCES 1．002594 BYD: Financial Analysis. [Electronic resource] // East Money — Access mode: https://emweb.securities.eastmoney.com/pc_hsf10/pages/index.html?type=web&code=SZ00 2594&color=b#/cwfx/cwbb — Access date: 15.09.2025. 2．Zhang, Q. Financial performance and influencing factors of new energy vehicle companies in China. / Q. Zhang, H. Li // Sustainability — 2023. — Vol. 15, No. 3. — P. 2468. 3．Al-Musali, M. K. The application of the DuPont model in analyzing the financial performance of Islamic banks. / M. K. Al-Musali, K. N. I. K. Ismail // Journal of Islamic Accounting and Business Research — 2021. — Vol. 12, No. 4. — P. 559-576.