DuPont ModelKnowledge Center |
Contributed by: Cees A.J. Wiegel MBA, Montal Consultancy
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Welcome to the Profitability Analysis center of 12manage.
Here we exchange knowledge and experiences in the field of Profitability Analysis.
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What is the DuPont Model?DuPont Analysis is a technique that can be used to analyze the profitability
of a company using traditional performance management tools. To enable this,
the DuPont model integrates elements of the Income Statement with those of
the Balance Sheet. Is is also known as "DuPont Identity". Origin of the DuPont Model. HistoryThe DuPont model of financial analysis was made by F. Donaldson Brown, an electrical engineer who joined the giant chemical company's Treasury department in 1914. A few years later, DuPont bought 23 percent of the stock of General Motors Corp. and gave Brown the task of cleaning up the car maker's tangled finances. This was perhaps the first large-scale reengineering effort in the USA. Much of the credit for GM's ascension afterward belongs to the planning and control systems of Brown, according to Alfred Sloan, GM's former chairman. Ensuing success launched the DuPont model towards prominence in all major U.S. corporations. It remained the dominant form of financial analysis until the 1970s. Calculation/Formula for DuPont AnalysisReturn on Assets = Net Profit Margin x Total Assets Turnover = Net Operating Profit After Taxes / Sales x Sales / Average Net Assets
Usage of the DuPont Framework. Applications
Steps in the DuPont Method. Process
Strengths of the DuPont Model. Benefits
Limitations of the DuPont analysis. Disadvantages
Assumptions of the DuPont method. Conditions
Compare with the DuPont Model: Return On Net Assets | Return on Equity | Economic Value Added | Performance Management Return to Management Hub: Decision-making & Valuation | Finance & Investing | Supply Chain & Quality |
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