Dupont Analysis Essay

A satisfactory return on assets might be divided through a spunky emolument brim , or a rapid employee turnover of assets, or a combination of both. The Du Pont system causes the analyst to examine the sources of a companys profitability. Since the profit margin is an income statement ratio, a high school profit margin indicates good cost control, whereas a high asset turnover ratio demonstrates efficient use of the assets on the balance sheet. Different industries have opposite operating and financial structures. For example, in the heavy capital goods industry the emphasis is on a high profit margin with a broken in asset turnoverwhereas in food processing, the profit margin is low and the key to satisfactory returns on total assets is a rapid turnover of assets.Return on asset= net income/ total asset= 10%Return on equity = 10% / (1- 400,000/2,000,000)= 12.5%thither are many advantages of Dupont analysis the Dupont method allows an investor to see which particular component s 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 boilersuit 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.