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Corresponding author:
1 Kyiv National University of Construction and Architecture, Ukraine.
E-mail: staskat@ukr.net
ORCID: https://orcid.org/0000-0001-8460-110X 
2 Kyiv National University of Construction and Architecture, Ukraine. 
E-mail: july81@i.ua
ORCID: https://orcid.org/0000-0003-3333-9900

DOI: https://doi.org/10.30525/2661-5150/2020-4-12

STUDY OF UNPROFITABILITY OF UKRAINE’S LARGE 
CONSTRUCTION ENTERPRISES BY THE DUPONT METHOD

Katerina Izmailova1, Yuliia Zapiechna2

Abstract. Profitability and its varieties remain the key indicator, which helps to explore certain dependencies 
and consequences of economic activity of each enterprise in the country. The authors study large construction 
companies in Ukraine to identify general trends in the construction sector. Despite their overall small share in the 
total number of all construction enterprises, one should note their significant contribution to the development 
of the construction sector of Ukraine and higher profitability compared to small and medium enterprises.  
The negative trend of large construction companies during 2010–2020 proves the relevance of a detailed analysis 
of such an indicator as the loss ratio of equity in order to identify the factors that have the greatest negative impact. 
Method. The authors analyse the impact of operating, investment and financial activities on the loss of equity of 
Ukrainian large construction companies in 2018 compared to 2013 by the widely known method of the company 
DuPont. It is based on an equation that shows the relationship between return on invested capital, asset turnover, net 
income and financial leverage. Only in 2018 the situation started to level off. Factor analysis of profitability indicators 
has revealed the in-depth factors that affect them, namely: loss of the main activity of construction enterprises for ten 
consecutive years, which caused a decrease in equity to a critically low level and, accordingly, high values of financial 
leverage. Results. The use of the DuPont method for the analysis of profitability (loss) for large construction companies 
has allowed a deeper analysis of the factors that influenced such indicators as return on equity. It has been found that 
the profitability (loss) of equity industries are influenced by the rate of business activity and financial dependence 
of large construction companies. Practical significance. It has been found that the loss of equity is influenced by a 
decrease in uncovered profits and a decrease in financial dependence (the ratio of financial dependence increased 
from 34.96 in 2013 to – 19.213 in 2018) of large construction companies. This indicates a gradual erosion of equity 
of construction companies, increasing the level of risk, reducing their financial stability. Additional measures are 
needed to revive the general economic situation in the country, including the digital transformation of construction, 
the search for innovative activities, the restructuring of institutional support for the construction sector.

Key words: large construction enterprises, DuPont method, return on equity, profitability of production activity, 
asset turnover, financial leverage.

JEL Classification: G17, G32, L74

1. Introduction
Current development of the national economy of 

Ukraine requires special attention to profitability of all 
types of enterprises.

Since construction is the economy sector that 
has been operating at a loss for more than ten years 
(Izmailova, Belenkova, Mogolivets, 2019), the urgent 
task of the researchers and experts is to identify the 
reasons to this issue.

To identify general trends in the construction sector 
the authors study large construction companies in 
Ukraine. Despite their overall small share in the 

total number of all construction enterprises, one 
should note their significant contribution to the 
development of the construction sector of Ukraine 
and higher profitability compared to small and 
medium enterprises.

One of the most important indicators for assessing 
the effectiveness of construction companies is their 
profitability (or loss). The term “profitability” is best 
described by the word “return”, because profitability 
indicators show the ratio of profit (or loss) to the 
level of sales, the amount of assets, and equity of the 
analysed object.



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Vol. 1, No. 4, 2020
It should be noted that common causes of 

unsatisfactory financial condition of large construction 
companies and the ways to improve it have been 
identified in the recent works by Goiko A. F. (Goiko, 
2008), Izmailova K. V. (Izmailova, 2005), Sorokina L. V. 
(Sorokina, 2017), Stetsenko S. P. (Stetsenko, Belenkov, 
Antropov, 2018), Krush P. V. (Krush, 2008), 
Bielienkova O. Yu. (Bielienkova, 2005; Bielienkova, 
2010; Izmailova, Belenkova, Mogolivets, 2019). 

Nevertheless, the negative trend of large construction 
companies during 2010–2018 proves the relevance of 
a detailed analysis of the general indicator – the loss 
of equity to identify the factors that have the greatest 
negative impact.

2. Large construction companies in Ukraine
The dynamics of the number of large construction 

companies in Ukraine during 2010–2018 is shown in 
Figure 1 (State Statistics Service of Ukraine).

The number of large construction companies in 
2018 decreases by 2.17 times in comparison with 2013. 
However, if you look at recent years, in 2018 there was 
a 3-fold increase compared to 2016, which indicates 
a gradual recovery of production capacity of large 
construction companies.

Examining the results of large construction 
companies, we can note the overall positive dynamics of 
the main criteria, such as the volume of sales.

But if we examine such an indicator as the volume 
of products (goods, services) of large construction 
enterprises, it decreased significantly, by 16.7% from 
22,308 to 18,582.2 million UAH.

Instead, such an indicator as the number of employees 
in large construction enterprises decreased in size by 
type of economic activity from 13 to 6.8 thousand 
people, respectively, in 2013 compared to 2018. At the 
same time, personnel costs of enterprises increased 
significantly from 708.9 to 1,093.2 million UAH, which 
was 54.21%.

0

2

4

6

8

10

12

14

2010 2013 2014 2015 2016 2017 2018

N
um

be
r 

of
 la

rg
e 

co
ns

tr
uc

ti
on

 c
om

pa
ni

es
 

Years 

Figure 1. Number of large construction companies (State Statistics Service of Ukraine)

0

5000

10000

15000

20000

25000

2010 2012 2013 2014 2015 2017 2018

m
ill

io
ns

, U
A

H
 

Years 

Figure 2. The volume of sold products (goods, services) of large construction 
companies (State Statistics Service of Ukraine) (2016 – data are not published  
in order to ensure the implementation of the Law of Ukraine "On State Statistics"  
on the confidentiality of statistical information)



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Vol. 1, No. 4, 2020
According to the State Statistics Committee 

of Ukraine (State Statistics Service of Ukraine), 
domestic large construction companies in 2018 have 
a negative return on investment comparing with 
2013. W hile in 2013 construction companies received 
a profit of 11.48% of equity and 0.33% of total assets, 
in 2018 the losses amounted to 6.91% and profit 
to 0.33% respectively. In the following 2019–2020, 
large construction companies gradually improved 
their position, which requires further research and 
determines the relevance of this work.

3. Application of the DuPont method
For such an analysis, the authors used one of the 

well-known methods of DuPont (Decoding DuPont 
Analysis Access mode), which will help to identify 
the influence of a number of dependent factors on 
the resulting indicator. The data of the Construction 
enterprises (State Statistics Service of Ukraine) were 
used for calculations

The most common method of financial analysis in 
the European Union was developed by the DuPont 
managers. It is based on an equation that shows the 
relationship between return on invested capital, asset 
turnover, net income and financial leverage. That is, 
return on equity (ROE) is considered as the product of 
the following three indicators: return on sales (RS), asset 
turnover (AT) and the ratio of financial dependence 
(KFD) (Bielienkova, 2010):

ROE RS AT KFD
P

VK

P

V

V

A

A L

VK
= = =

=
* * * * ,

where P is the net profit;
V is the net sales revenue;
VK is the equity;
A is the assets;
L is the liabilities.
According to this model, the return on equity depends 

on three factors, namely: return on sales, resource 
efficiency, the structure of sources of funds invested in 
the enterprise.

These three indicators, respectively, characterize the 
state of operating, investment and financial activities 
of economic entities (in our case – large construction 
companies). Therefore, in the practice of financial 
analysis, the return (loss) of equity is considered the 
most important final indicator, which focuses on the 
results of all activities.

The loss of equity of large construction companies in 
2018 was influenced by these factors as follows:

ROE =
− −



















= −

290 6

397 2 1704 5
2

100 6 91

,

, ,
)* , %

The loss of equity of large construction 
companies was mainly affected by the loss of 

operating activities – as a result of uncovered loss 
of large construction companies in the amount 
of -1532.6 million UAH. The profitability of sales 
amounted to 1.52%.

Using the above equation, you can build a number 
of relationships that allow you to analyse the impact 
of various factors on the financial result. From these 
ratios it is determined what factors cause changes in 
profitability (loss) of equity – return on assets, business 
activity of the enterprise or industry as a whole, or the 
way of financing its activities (financing from equity or 
borrowed capital).

Each of the three factors in the DuPont equation 
depends on other indicators. For example, the 
profitability of sales depends on the amount of profit 
or loss from sales, which, in turn, depends on prices, 
costs, volumes and structure of sales. Costs depend on 
the prices of resources used and the volume of their 
consumption and so on. Consistently, considering 
the level by level, you can build an extensive system of 
indicators.

At the heart of this system is the return (or loss) of 
equity. By changing the values of indicators of any level, 
including even the most distant from the base, you can 
trace their impact on the resulting indicator (Figure 3).

Figure 3 shows that the losses of enterprises in the 
industry were affected by a decrease in uncovered 
loss compared to the previous year, which, however, 
could not compensate for the lack of equity of large 
construction companies.

This critical situation is caused by the lack of 
institutional support for enterprise development. 
Thus, the bankruptcy procedure, according to the 
Antimonopoly Committee, lasts more than two years. 
This means that non-viable enterprises continue to 
operate, negatively affecting the performance and 
development of the entire construction sector.

If we compare 2018 with 2013, we can determine 
that in 2013 the main factor that caused the loss of the 
construction industry was a sharp decline in investment 
activity in the country. This triggered a reduction in 
business activity, led to a sharp increase in losses and 
erosion of equity.

 To remedy the situation it is required to restore the 
operational activities of large construction companies, 
search for orders, and return to the volume of work 
performed at the pre-crisis level. Enterprises that 
are unable to restore their solvency must go through 
bankruptcy proceedings, which should have a positive 
impact on the development of the construction sector.

4. The turnover of assets  
of large construction companies

The next factor that influenced the efficiency of 
large construction companies is the asset turnover 
ratio. Asset turnover characterizes the efficiency of use 



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of all resources available to construction companies, 
regardless of the sources of their involvement. There is 
no normative value of this indicator, but the faster the 
resources of enterprises rotate, the better. Reducing the 
turnover of resources is a lever to reduce the financial 
well-being of the enterprise. The low level of asset 
turnover ratios may indicate insufficient capacity and 
low efficiency of production facilities.

The turnover of assets of large construction 
companies in 2018 increased significantly by 39.33% 
compared to 2013. However, this rather reflects the 
efforts of enterprises in the sector to maintain the 
volume of construction by increasing the number of 
cash cycles of working capital and a corresponding 
decrease in their volume in terms of reduced funding.

W hile in 2013, 1 UAH assets of the construction 
industry accounted for 1 UAH. 55 kop. net sales 
revenue, in 2018 it is already 95 kopecks. This 
indicates a significant increase in business activity 
of large construction companies in 2018. That is, 
the intensification of operating activities of large 
construction companies is currently continuing, 
but it does not provide even the minimum level 
of profitability of the sector. The small number of 

profitable enterprises has a much smaller impact on 
the financial performance of the construction sector 
compared to a significant number of companies with 
losses.

According to the DuPont model (see Figure 3), 
the value of the loss of equity of large construction 
companies was also significantly affected by the 
coefficient of financial dependence (financial leverage). 
The model presents ratio of debt and equity and signals 
an increased risk of loss of financial independence by 
construction companies.

The level of financial leverage can determine the 
percentage change in return on equity when the 
financial result changes (without interest and loan tax) 
by 1% under different shares of borrowed capital in 
liabilities.

In 2013 the value of the ratio was more than 3, which 
meant that borrowed capital exceeded equity more 
than 3 times, in 2018 the ratio decreased significantly 
to -19,213, which presented a critical situation with 
equity and signals a low level of financial stability of 
the sector.

Increasing the share of borrowed capital in many 
cases has its advantages, as debt is beneficial in the 

Profitability (loss) of equity
ROE =Pr/VK = 290,6/(-1050,9)= -0,0691

Return on capital (loss of capital)
Ra = Pr/A = 290,6/4600,95= 0,0036

Financial lever
KFD= Аaverage /VKaverage =

=20190,1/(-1050,9)= -19,213
Profitability (loss) of 
production activities

RS = Pr/Pa =290,6/19119,5=
= 0,0152

Asset turnover
Qa =Pr/A average=

=19119,5/20190,1= 0,95

VКaverage=(VKfinal+VKinitial)/2= 
=(-1704,5-397,2)/2=

= -1050,9 million UAH

Аaverage= (Аinitial+Аfinal)/2 = 
(15589,1+24791)/2=

=20190,1 million UAH

Increase in non-current 
assets (NA) 

1134.3 million UAH

Increase in sales 
revenue by 72.5%.
Pa = 8035,9 million 

UAH

Reduction of retained 
earnings 

500.8 million UAH

Net profit (loss)
Profit =

=290,6 million UAH.

There are no changes 
from other sources of 

replenishment of equity

Increase in turnover
assets (OA) 

8067.7 million UAH

Cost change by 67.89%
= 6303,2 million UAH

Increasing the authorized and 
reserve capital of enterprises 

in the industry
806.5 million UAH

Financial activityOperational activity Investment activity

Figure 3. The impact of operating, financial, investment activities of large construction companies  
on the loss of equity of the industry in 2018 (State Statistics Service of Ukraine)



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period of economic development, expansion of 
enterprises, and while inflation. In addition, the fee for 
the use of borrowed capital is a gross expense and is 
not taxed.

However, as the share of borrowed funds in the 
capital structure increases, so does the amount of 
fixed-term payments and the probability of failing 
to pay principal and interest due to adverse market 
conditions. This leads to an increase in the level of 
financial risk.

The reverse direction of the financial lever should 
also be considered. With a slight decrease in gross 
profit, return on equity will decrease significantly 
in an organization with high financial leverage and 
insignificantly – with low.

5. Conclusion
That is, during the period of growth of the 

enterprises and the increase in the volume of work 
performed and profits, the enterprises that have more 
value of financial leverage will work more efficiently, 
develop, and get a greater return on invested capital. 
Conversely, at a time of decline, a sharp decline in 
the volume of work performed, these companies will 
receive greater losses per unit of equity than those who 
pursued a more moderate borrowing policy.

Thus, a significant share of borrowed funds in 
the structure of the balance sheet of construction 

companies, which were one of the main sources 
of growth of the construction industry during the 
development, significantly reduced the stability of 
enterprises in the crisis.

In the following 2019–2020, large construction 
companies gradually improved their position, which 
required further research and determines the relevance 
of this work.

The results of the analysis comparing not only 
from 2013 to 2018, but examining the general trend 
over all six years confirmed the findings of many 
scientists and experts that the main cause of losses 
of large construction companies is a sharp decline in 
construction in the country.

The use of the DuPont method for the analysis of 
profitability (loss) for large construction companies 
allowed a deeper analysis of the factors that influenced 
such indicators as return on equity, the indicator.

It has been found that the profitability (loss) of 
equity industries are influenced by the rate of business 
activity and financial dependence of large construction 
companies. Moreover, the main reason for the loss 
of the sector is the erosion of equity of construction 
companies, increasing the level of risk, reducing their 
financial stability. Additional measures are needed to 
revive the general economic situation in the country, 
including the digital transformation of construction, 
the search for innovative activities, the restructuring of 
institutional support for the construction sector.

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