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DuPont System of Analysis

The Dupont System of Analysis is used to dissect the firm’s financial statements
and to assess its financial condition.
It merges the income statement and balance sheet into two summary measures
of profitability.
ROA and ROE are the series of equations for Dupont analysis

FORMULA: (Using the Income statement and Balance Sheet)


Earnings Available for Common Stockholders = Sales – Cost of Goods Sold –
Operating Expenses – Interest Expense – Taxes – Preferred Stock Dividend
EACS = S – COGS – OE – IE – T – PSD

Net Profit Margin = Earnings Available for Common Stockholders / Sales


NPM = EACS / S

Total Assets = Current Assets + Net Fixed Assets


TA = CA + NFA

Total Assets Turn Over = Sales / Total Assets


TATO = S / TA

Financial Leverage Multiplier = Total Liabilities and Stockholders Equity=Total


Assets / Common Stock Equity
FLM = TL&SHE=TA / CSE

Dupont Formula:
Return on Total Assets (ROA) = Net Profit Margin x Total Asset Turn Over
ROA = NPM x TATO

Modified Dupont Formula:


Return on Common Equity (ROE) = Return on Total Assets x Financial Leverage
Multiplier
ROE = ROA x FLM
The DuPont Equation focuses on expense control (profit margin), asset utilization
(total asset turn-over), and debt utilization (equity multiplier).

ROE = PROFIT MARGIN x TOTAL ASSETS TURN-OVER x EQUITY MULTIPLIER

ROE = (NI/SALES) x (SALES/TOTAL ASSETS) x (TOTAL ASSETS/EQUITY)

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