Talk:DuPont analysis

The order it is a-changin'

Changed the order of the basic formula - so the first term is NI / sales and last term is Avg assets / SE

Under Examples, High Margin Industries, there is one sentence, but it has no meaning. This section needs to be clarified/expanded.--Bloemer (talk) 15:11, 21 January 2010 (UTC)

 —Preceding unsigned comment added by 68.50.77.232 (talk) 00:52, 9 March 2010 (UTC) 

Wrong! you're euqating the traditional ROI formula (Net/assets) to the DuPont formula (M*T). They are NOT the same, that is the whole point of DuPont inventing the new ROI formula.

Take a look at this, he has it right and explains it well. http://www.russell.com/us/glossary/accounting/roi.htm —Preceding unsigned comment added by 65.23.40.194 (talk) 18:56, 22 April 2010 (UTC)

The Dupont Model Graphic is incorrect. This may be due to a translation from Norwegian, but I have seen others do the same error with regards to use of words. In the two boxes named "Operating Income" this should be repaced with "Operating Revenue". Operating Income refers to the profits generated after the operating expenses have been subtracted, whereas Operating Revenue refers to the revenue from ordinary business. CaliViking (talk) 22:59, 15 October 2011 (UTC)

Thanks for posting the above: All good points, particularly on that very misleading graphic. Operating Income is indeed operating revenue - operating expenses. Need to use "sales" or "sales revenue" in the ROA numerator and in the Margin(s) denominator, we divide by sales.

Another notable issue in all the basic formulas using numerator from income statement and denominator from balance sheet, i.e., ROA, ROE, Asset Turnover, we must use the "average", i.e., average total assets, average total equity, not a fixed date. This is because the numerator covers a period of time while the denominator is fixed at a point in time so we need an estimate of the average balance during the same period of time as the numerator. E.g., if we are calculating ROA for a year, we need to use the average assets for the year, usually by taking beginning plus ending balance and dividing it by 2. If we are doing the analysis using a quarterly income statement number, you would do the same but using beginning and ending quarterly asset numbers from the balance sheet. If you had monthly data (e.g., internally), you'd get a more accurate number. Using averages become more important in growth companies or companies that are divesting.

Note that the link at russell.com no longer functions.

There is a more sophisticated version of the Dupont Analysis and sub-components that focuses more specifically on operating vs non-operating activities, using Return on Operating Assets and Operating Assets Turnover. The more I look for references on basic financial analysis, the more I find lots of resources from people who think they know it all and convey wrong information.

BugsyJunior (talk) 17:22, 15 July 2012 (UTC)

"lots of resources from people who think they know it all and convey wrong information." I think the saying is, "Welcome to Wikipedia!" Phytism (talk) 11:08, 27 March 2013 (UTC)

References

ROA formula is incorrect

List the asset turnover formula as (Sales)/(Total Assets)

It should be (Sales)/(Average Total Assets) — Preceding unsigned comment added by 67.234.131.220 (talk) 21:35, 4 May 2015 (UTC)