DuPont Analysis
It was the system developed in America
to analyze financial statements which has received wide recognition. It is one
of the powerful tool to analyze the financial statements. It helps us to reveal about the
interrelationships that are found in financial statements and it has also been
adopted by various firms to analyze their financial statements.
DuPont Analysis can be defined as “A combination
of Margin Ratio, Efficiency Ratio and long term solvency ratio.” In DuPont
Analysis assets are valued at gross book value rather than net book value in
order to produce higher rate of equity. DuPont Analysis helps to identify the in-depth
reason behind the higher or lower profitability with respect to its
competitors. It also reveals the interrelationship that exists between various
ratios. It also helps us to study how and which factor is influencing the
financial statements positively and negatively. Thus it helps us to assess our efficiencies.
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