Join Jim Stice for an in-depth discussion in this video The DuPont Company, part of Running a Profitable Business: Understanding Financial Ratios.
- Kay, have you ever heard of the Dupont company? - Of course I have. - Can you name some of their famous products? - Yes, I can. Some of the well-known products invented in Dupont's laboratories include: Nylon, which was accidentally discovered when Dupont's chemists were seeing how far they could stretch polyester fibers, Teflon and Silverstone, which are non-stick finishes, Kevlar, which is used in bulletproof vests, and Lycra, which is a spandex fiber. - Okay, try this one. What was Dupont's first product? - Well, the original Monsieur Dupont came to the United States from France and established a gunpowder factory near Wilmington, Delaware.
- All right, you seem to have some knowledge of the Dupont Company. so tell us, why is Dupont famous in the field of financial ratio analysis? - Over 100 years ago, an accountant at Dupont, F. Donaldson Brown, created a way for a company to compare operating performance in various different divisions. - So why was this such a big deal? - Well, Dupont was a vertically integrated company, and management often had to compare really different projects. For example, they would have to decide whether to spend money to improve their manufacturing processes to lower cost, or to use that same money to streamline their purchasing process so they could hold less inventory.
- So, how does this F. Donaldson Brown come into this? - Mr. Brown created a financial ratio analysis framework that combined measures of profitability and efficiency into one overall measure of performance. - So what's this framework called? - The Dupont Framework. - Well, let's learn about it.
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- What are financial statements?
- Understanding the DuPont framework
- Working with common-size financial statements
- Reviewing profitability, efficiency, and leverage ratios
- Analyzing potential-pitfall ratio