DUPONT CHART

Definition
DuPont analysis is a model widely used in financial ratio analysis to designate the ability of a
company to increase its return on equity ratio (ROE). The model breaks down ROE ratio into
three components: profit margin, asset turnover, and financial leverage.

Formula
The DuPont model is expressed as follows:

ROE = Profit margin × Asset Turnover × Financial Leverage

or

Net Income Net Sales Total Assets

ROE = × ×
Net Sales Total Assets Total Shareholders’ Equity

Profit margin, also known as net profit margin, is usually calculated for common shareholders;
thus, net income less preferred dividends (if available) should be used.

Average total assets are the sum of total assets at the beginning and at the end of the period
divided by 2.

Value of total assets and shareholders’ equity can be found in the balance sheet, net sales and net
income can be found in the income statement, and preferred dividends can be found in the notes
to the financial statements.

Advantages and disadvantages of DuPont analysis

Advantages

DuPont analysis is an excellent technique to determine the strengths and weaknesses of a

company. Each weak financial ratio used in the model can be decomposed to get deeper insight
into the source of weakness. When sources of weakness are identified, management can take
some actions (e.g., improve expense control, asset management, or marketing) to improve the
return on equity ratio.
Disadvantages
The main drawback of DuPont analysis is that it uses accounting data disclosed in financial
statements, which can be manipulated by management to hide some weaknesses. Thus, to get
correct results, accurate accounting data must be inputted.

Another disadvantage is inherent to all financial ratio analysis systems. It works best to compare
companies of the same size working in the same industry.

DuPont chart
The DuPont model can be more complicated than the 3-factor model mentioned above. For
example, more detailed analysis can be done using the 5-factor model.

EBIT EBT Net Income Net Sales Total Assets

ROE = × × × ×
Net Sales EBIT EBT Total Assets Total Shareholders’ Equity
Importance of DuPont Analysis

Many equity investors look into return on equity for judging whether company is generating
good return on the investment of the shareholders. However it may not be prudent to look at
ROE, instead one should go for DuPont analysis in order to have a better understanding about
the return on equity.

DuPont can be calculated as ROE = (net income / sales) * (sales / assets) * (assets / shareholder’s
equity)

In the above equation we have ROE broken down into net profit margin which implies that how
much profit the company is earning from sales, asset turnover which implies that how efficiently
the company is using its assets, and equity multiplier which is a measure of how much the
company is leveraged.

DuPont™ Delrin® POM Extends Scope

"In the light of rising demand for quality among consumers, the automotive industry sets
extremely low limits for the emission of volatile organic compounds (VOC)," said Hans-
Hermann Kirner, material development manager for automotive interiors at DuPont. "Tests of
samples of the new impact-modified Delrin® 300TE, conducted by the renowned independent
Fresenius Institute in Herten, Germany, revealed formaldehyde emissions of 1.0 mg/m² and
lower. Such results are considerably below the limit of 2.0 mg/m² set by leading German OEMs
and mean that the new material meets the world's most stringent requirements with regard to
VOC emissions in this sector."

With a melt flow index (MFI190/2,16) of 6 g/10min, Delrin® 300TE bridges the gap between
Delrin® 100T (MFI = 2), which combines high viscosity with very high impact resistance, and
the medium viscosity, stiffer Delrin® 500T (MFI = 12).

DuPont™ Delrin® 300TE is considerably more impact resistant than Delrin® 300PE, a
previously launched low-emission grade that also is suitable for use in automotive interiors. It
achieves a notched impact strength at 23°C of 18 kJ/m² (Delrin® 300PE: 11 kJ/m²). At –30°C,
the notched impact strength of the new 300TE grade is still as high as 10 kJ/m² (300PE: 8 kJ/m²).

As with all members of the acetal resin family from DuPont, new Delrin® 300TE also combines
high strength, hardness and stiffness over a broad temperature range with high abrasion
resistance and a low coefficient of friction, a high heat deflection temperature, good electrical
and dielectric properties and high dimensional stability.

Kirner adds: "Thanks to its high-melt flow, thin-walled parts with long flow paths — for instance
the struts used in headrests — are among the principal areas for developments in Delrin®
300TE. In general all POM grades are suitable for use in low-noise and low-friction control and
drive systems.” Additional low-emission grades for delicate, small parts are in development.