DU PONT ANALYSIS

DU PONT ANALYSIS
Himanshu Bahl

1. Also known as
a)
b)
c)
d)

Du Pont Identity
Du Pont Equation
Du Pont Model
Du Pont Method

2. Pioneered by DU PONT Company of United States
3. It is a system of financial analysis which received wide spread recognition and acceptance
4. It was developed by DU PONT company for analyzing and controlling financial performance
5. It is an expression which breaks Return on Equity into three parts :
a)
b)
c)

Profitability (Measured by Profit Margin)
Operating Efficiency (Measured by Asset Turnover)
Financial Leverage (Measured by Equity Multiplier)

Profit Margin
Profit Margin = Net Profit
Sales

Cost of Goods Sold
Operating Expenses
Interest and Taxes
Total Cost

Net Profit = Net Sales – Total Cost

=
=
=
=

xxx xxx xxx xxx Asset Turnover
Asset Turnover =

Net Sales
Total Assets

Total Assets = Current Assets + Fixed Assets

Inventory
Accounts Receivables
Cash and Bank Balance
Current Assets

=
=
=
=

xxx xxx xxx xxx Equity Multiplier
Equity Multiplier =

Assets
Shareholder’s Equity

Return on Equity
Return on Equity = Net Profit Margin X Asset Turnover X Equity Multiplier

Return on Equity = Net Profit
Sales

Sales
Assets

Assets
Shareholder’s Equity

Return on Equity = Net Profit (or Profit after Tax)
Shareholder’s Equity

6. Helps in understanding How the net Return on
Investment is influenced by the Net Proft Margin and Total Asset Turnover Ratio

Return on Investment
Return on Investment = Net Profit Margin X Asset Turnover

DU PONT CHART

Refrences

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http://icwai.org/studies/Fin_Managt.aspx http://financenmoney.in/roi-and-the-du-pont-analysis/ http://www.investopedia.com/terms/e/equitymultiplier.asp http://www.investopedia.com/terms/r/returnonequity.asp http://en.wikipedia.org/wiki/DuPont_analysis
http://www.financeformulas.net/Equity_Multiplier.html