Module 2 Flashcards
DuPont Framework
A systematic approach to identifying general factors causing ROE to deviate from normal.
the dupont framework provides
a way for a company to compare operating performance in different divisions
the dupont framework helps to
decide in what area of the business to invest money with most efficiency
the dupont framework helps f
facilitate comparison with your competitors
Return on Equity
profitability * efficiency * leverage
Profitability ratios measure
the operating success of a company for a given period of time.
Profitability
return on sales
net inc/sales
Efficiency ratios measure
How well a company manages and uses its assets.
Efficiency
asset turnover
sales/assets
Leverage ratios measure
the degree to which a firm relies on borrowed funds in its operations
leverage
asset to equity
asset/equity
use the Dupont framework to
dig into what drives ROE & why an ROE is considered high or low
use the Dupont analysis to
determine what each company does to improve its ROE and whether the improvement is sustainable
