FINANCIAL RATIO ANALYSIS REPORT

 CLASSIFYING FINANCIAL RATIOS

 LIQUIDITY
 PROFITABILITY RATIOS
 ACTIVITY RATIOS
 FINANCIAL LEVERAGE
 RETURN ON INVESTMENT
 THE DuPont SYSTEM
 COMMON-SIZE ANALYSIS
 USING FINANCIAL RATIO ANALYSIS
THE DuPont SYSTEM (OUTLINE)
DEFINITION
- A framework for analyzing fundamental performance popularized by the
DuPont Corporation.
- A useful technique used to decompose the different drivers of return on
equity (ROE). The three primary drivers of ROE better sales/turnover,
greater margins, and higher debt levels.
- A formula used to track a company’s financial performance whereas, it was
developed in 1914 by F. Donaldson Brown (employee of DuPont Corp.) . His
formula incorporates earnings, investment, and working capital together
into a single figure that he called return on investment (ROE).
- One of the analysis tools used by investors to compare the operational
efficiency of two similar firms.
- Used by managers to identify strengths or weakness that should be
addressed.

EBIT Revenues
BASIC EARNING POWER= ×
Revenues Total Assets

EBIT ¿earnings before interest and tax/operating profit margin

Total asset turnover¿ Revenues /Total A ssets
BASIC EARNING POWER=OPERATING PROFIT MARGIN ×TOTAL ASSET TURNOVER