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Experts are calling for wider adoption of the world renowned Dupont financial analysis for better reflection of effective performance of companies.
The call comes amidst a few progressive blue chips embracing the Dupont model to drive enhanced stakeholder returns.
The Dupont analysis, also called the Dupont model, is a financial ratio based on the return on equity (ROE) ratio that is used to analyse a company’s ability to increase its ROE. This model breaks down the return on equity ratio to explain how companies can increase their return for investors.
The Dupont analysis looks at main components of the ROE ratio - Profit Margin, Total Asset, Turnover and Financial Leverage
Based on these three performance measures, the model concludes that a company can raise its ROE by maintaining a high profit margin, increasing asset turnover, or leveraging assets more effectively.
The Dupont Corporation developed this analysis in the 1920s.
The name has stuck with it ever since.
The Dupont Model equates ROE to profit margin, asset turnover, and financial leverage.
