Dupont Analysis Essay

A satisfactory return on additions might be divided through and through a superior sugar margin , or a fast turnover of assets, or a combination of both. The Du Pont system causes the analyst to attend the sources of a confederations profitability. Since the profit margin is an income statement ratio, a high profit margin indicates good cost control, whereas a high asset turnover ratio demonstrates efficient use of the assets on the sense of equilibrium sheet. Different industries have different operating and financial structures. For example, in the life-threatening capital goods industry the emphasis is on a high profit margin with a low asset turnoverwhereas in aliment processing, the profit margin is low and the key to satisfactory returns on full(a) assets is a rapid turnover of assets.Return on asset= net profit income/ total asset= 10%Return on equity = 10% / (1- 400,000/2,000,000)= 12.5%There are many advantages of Dupont analysis the Dupont method allows an investo r to see which special(a) components of the business are profitable or efficient, as well as those that are not. The Dupont ratio equation also allows the analyst to see the general strategy for a company. For example, a company with a high asset turnover and a low profit margin is a company whose strategy depends upon the bulk selling of cheaper products.