From the course: Excel: Management Accounting
Join today to access over 22,600 courses taught by industry experts or purchase this course individually.
The DuPont system - Microsoft Excel Tutorial
From the course: Excel: Management Accounting
The DuPont system
- [Instructor] Pinnacle of ratio analysis is what's called the Dupont System or Dupont analysis, named for an explosive salesman at the Dupont Corporation that invented the system almost 100 years ago. The Dupont equation tells the firm the source of its profits and the impact that operational improvements should have on profitability. Let's see how it works. So the formula for the Dupont analysis is based on what we call ROE or return on equity. And the formula simply says that profit margin multiplied by total asset turnover multiplied by the equity multiplier gives us return on equity. Now profit margin is itself composed of net income to sales and total asset turnover is simply sales to total assets. Finally the equity multiplier is total assets to common equity. So if you notice, if you were to cancel all of these things out mathematically, ROE is just net income to common equity. The value in having this expanded formula, though, is that it tells us how we can use operational…
Practice while you learn with exercise files
Download the files the instructor uses to teach the course. Follow along and learn by watching, listening and practicing.
Download courses and learn on the go
Watch courses on your mobile device without an internet connection. Download courses using your iOS or Android LinkedIn Learning app.