DuPont Analysis

DuPont Analysis
A method of performance measurement that was started by the DuPont Corporation in the 1920s. With this method, assets are measured at their gross book value rather than at net book value in order to produce a higher return on equity (ROE). It is also known as "DuPont identity".

DuPont analysis tells us that ROE is affected by three things:
- Operating efficiency, which is measured by profit margin
- Asset use efficiency, which is measured by total asset turnover
- Financial leverage, which is measured by the equity multiplier

ROE = Profit Margin (Profit/Sales) * Total Asset Turnover (Sales/Assets) * Equity Multiplier (Assets/Equity)

It is believed that measuring assets at gross book value removes the incentive to avoid investing in new assets. New asset avoidance can occur as financial accounting depreciation methods artificially produce lower ROEs in the initial years that an asset is placed into service. If ROE is unsatisfactory, the DuPont analysis helps locate the part of the business that is underperforming.


Investment dictionary. . 2012.

Игры ⚽ Нужен реферат?

Look at other dictionaries:

  • DuPont analysis — (also known as the DuPont identity, DuPont equation, DuPont Model or the DuPont method) is an expression which breaks ROE (Return On Equity) into three parts. The name comes from the DuPont Corporation that started using this formula in the 1920s …   Wikipedia

  • Dupont — Dupont, DuPont, Du Pont, or du Pont may refer to: Contents 1 Companies 2 Places in the United States 3 People 4 Other Comp …   Wikipedia

  • DuPont Danisco — Cellulosic Ethanol LLC Type LLC Joint venture Founded July 21, 2008 Headquarters Itasca, IL, USA Key people …   Wikipedia

  • DuPont Building — During the St. Patrick s Day parade in 2009 General information Location 1007 N. Market Street Wilmington, Delaware, United States …   Wikipedia

  • DuPont — This article is about E.I. du Pont de Nemours and Company. For other uses, see Dupont (disambiguation). E. I. du Pont de Nemours and Company Type Public Traded as NYSE:  …   Wikipedia

  • DuPont Experimental Station — Aerial photo of the Dupont Experimetal Station in the summer of 1997. The Brandywine Creek is in the immediate foreground and right. The stone building in the center of the picture is the original clubhouse of the Dupont Country Club which has… …   Wikipedia

  • DuPont Central Research — In 1957, the research organization of the Chemicals Department of E. I. du Pont de Nemours and Company was renamed Central Research Department, beginning the history of the premier scientific organization within DuPont and one of the foremost… …   Wikipedia

  • DuPont Identity — An expression that breaks return on equity (ROE) down into three parts: profit margin, total asset turnover and financial leverage. It is also known as DuPont Analysis . DuPont identity tells us that ROE is affected by three things: Operating… …   Investment dictionary

  • Dupont Plaza Hotel arson — Dupont Plaza Rescue by Phyllis Gottschalk The Dupont Plaza Hotel fire was a fire that occurred at the Hotel Dupont Plaza (now San Juan Marriott Resort Stellaris Casino) in San Juan, Puerto Rico on New Year s Eve, December 31, 1986. The fire was… …   Wikipedia

  • Dynamic mechanical analysis — Viscoanalyseur Pour les articles homonymes, voir AMD et DMA. Un viscoanalyseur ou analyseur mécanique dynamique (AMD) fait partie de la famille des appareils de DMA ou DMTA (en anglais Dynamic Mechanical Thermal Analysis). Cet instrument… …   Wikipédia en Français

Share the article and excerpts

Direct link
… Do a right-click on the link above
and select “Copy Link”