From the course: Financial Accounting Part 2

Unlock the full course today

Join today to access over 25,200 courses taught by industry experts.

DuPont framework

DuPont framework

From the course: Financial Accounting Part 2

Start my 1-month free trial Buy for my team

DuPont framework

“

- The DuPont framework is named after a system of ratio analysis developed over 100 years ago at DuPont by F. Donaldson Brown. This framework provides a systematic approach to identifying general factors causing ROE to deviate from normal. The DuPont system also provides a framework for computation of financial ratios to yield a more in-depth analysis of a company's areas of strengths and weaknesses. Now, the insight behind the DuPont framework is that ROE can be broken out into three components: profitability, efficiency, and leverage. For each of the three ROE components, profitability, efficiency, and leverage, there is one ratio that summarizes a company's performance in that area. These ratios are as follows: first, return on sales, a measure of a company's profitability is computed as net income divided by sales and is interpreted as the number of pennies in profit generated from each dollar of sales,…

Contents