DuPont

Marcel van Assen, Gerben van den Berg and Paul Pietersma has done a good summary of the Dupont analyses and how it can be used in the book Key Management Models, here we will just give an overview of the model. The DuPont analyses can be used to illustrate how different factors impact on important financial performance indicators, such as, the return on capital employed (ROCE), the return on assets (ROA), or the return on equiry (ROE), in the illustrations below the focus is on ROA and ROE. The model makes it possible to understand the underlying elements that make up these key financial indicators and the possibility to predict the effect of variability in one or more input variables.

The DuPont analyses will show big differences between industries. If looking at the ROE, a high score can be caused either by operational efficiency or by capital efficiency. High turnover industries (e.g. retailers) tend to face low profit margins, high asset turnover and a moderate equity multiplier. Other industries, such as fashion, depend on high profit margins.

Source: Marcel van Assen, Gerben van den Berg, Paul Pietersma, Key Management Models 2nd Edition, 2009, Harlow (link to latest edition)