From the course: Corporate Financial Statement Analysis

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Apply DuPont analysis to ROE components

Apply DuPont analysis to ROE components

From the course: Corporate Financial Statement Analysis

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Apply DuPont analysis to ROE components

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Okay, as we saw, uncertain had a return on equity of 9.3%, not good. Benchmark had a return on equity of 20.3%, that's very good. Now, anybody can see that benchmark is higher than uncertain when it comes to return on equity. So it turns out that we can now either be a problem pointer or a problem solver. Anybody can see that uncertain has a problem. What we want to know is why do they have a problem? And that brings us in all its glory to the DuPont framework. In the area of financial ratios, the DuPont framework might be the most well-known set of ratios there is. Over 100 years ago, an accountant of DuPont, F. Donaldson Brown, created a way for a company to compare operating performance in various different divisions. DuPont was a vertically integrated company and management often had to compare really different projects. Mr. Brown created a financial ratio analysis framework that combined measures of profitability and efficiency into one overall measure of performance that allows…

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