From the course: Running a Profitable Business: Understanding Financial Ratios

The DuPont company: creating accounting history

From the course: Running a Profitable Business: Understanding Financial Ratios

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The DuPont company: creating accounting history

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- 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 Lyrca, which is a spandex fiber. - Okay, try this one, what was DuPont's first product? - Well, the original Monsieur DuPont came to 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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