Dupont Analysis

Dupont Analysis

The DuPont Analysis or known as dupont identity, Dupont equation, Dupont model or dupont method is one method use to analysis the company by dividing the ROE or Return On Equity into three parts. This formula was first used by DuPont Corporation in 1920s. Dupont Analysis focused to operating management, management of assets and the capital sructure of a company this three point is a critical elements of financial  condition  of a company.

One indicator of  a successful company is from ROE or Return On Equity, because by using the ROE indicator the investor can know what the return is on position of the company that belongs to equity. That means It is a simple calculation that quickly summarizes the ability of management to turn shareholder equity into profitable returns. Using the Dupont analysis investor or the management of company can know the interrelationship between key financial ratios. It can be presented in :

Basic formula is :

·         Return on equity (ROE) = net income / total equity

If we want multiply ROE by Sales, the formula is :

·         Return on equity = (net income / sales) * (sales / total equity)

·         => Return On Equity = net profit margin * return on equity

Another formula is :

·         Return on equity (ROE) = net income / total equity

If we multiply ROE by assets we get :

·         ROE = (net income / sales) * (sales / assets) * (assets / equity)

·         => ROE = net profit margin * assets turnover * equality multiplier

The Dupont formula can be expanded further  to giving the analyst more information

Example :

·         ROE = (net income / sales) * (sales / assets) * (assets / equity)

If in a third instance we substituted net income for EBT * (1-tax rate), we get:

ROE =(EBT/sales) * (sales / assets) * (assets / equity)* (1-tax rate)

Sumber :

Return on Equity and the Dupont System – CFA Level 1 _ Investopedia.htm

DuPont analysis - Wikipedia, the free encyclopedia.htm#Basic_formulae