Du Pont Analysis

May 19th, 2015
Studypool Tutor
Northwest Missouri State University
Price: $10 USD

Tutor description

A type of analysis that examines a company's Return on Equity (ROE) by breaking it into three main components:profit margin, asset turnover and leverage factor. By breaking the ROE into distinct parts, investors can examine how effectively a company is using equity, since poorly performing components will drag down the overall figure

Word Count: 1924
Showing Page: 1/6
conservationPrudence concept: revenue andprofitsare included in thebalance sheetonly when they arerealized(or there isreasonable'certainty' of realizing them) butliabilitiesare included when there is a reasonable 'possibility' of incurring them. Also calledconservation concept.Du Pont analysisA type ofanalysisthat examines a company'sReturn on Equity (ROE)by breaking it into three maincomponents:profit margin,asset turnoverandleveragefactor. By breaking theROEinto distinctparts,investorscan examine how effectively acompanyis usingequity, since poorly performing components will drag down the overall figure. To calculate afirm'sROE through Du Pont analysis, multiply theprofitmargin(net incomedivided bysales),assetturnover(sales divided by assets) and leverage factor (total assetsdivided byshareholders' equity) together. The higher theresult, the higher thereturnon equity.Return on EquityROE. Ameasureof how well acompanyused reinvestedearningsto generate additional earnings, equal to afiscal year'safter-taxincome(afterpreferred stockdividendsbut before commonstock dividends) divided bybook value, expressed as apercentage. It is used as a general indication of the company'sefficiency; in otherwords, how muchprofitit isableto generate given theresourcesprovided by itsstockholders.investorsusually look for companies withreturnsonequitythat areh

Review from student

Studypool Student
" Thank you! Reasonably priced given the quality not just of the tutors but the moderators too. They were helpful and accommodating given my needs. "
Ask your homework questions. Receive quality answers!

Type your question here (or upload an image)

1823 tutors are online

Other Documents


Brown University

1271 Tutors

California Institute of Technology

2131 Tutors

Carnegie Mellon University

982 Tutors

Columbia University

1256 Tutors

Dartmouth University

2113 Tutors

Emory University

2279 Tutors

Harvard University

599 Tutors

Massachusetts Institute of Technology

2319 Tutors

New York University

1645 Tutors

Notre Dam University

1911 Tutors

Oklahoma University

2122 Tutors

Pennsylvania State University

932 Tutors

Princeton University

1211 Tutors

Stanford University

983 Tutors

University of California

1282 Tutors

Oxford University

123 Tutors

Yale University

2325 Tutors