Finance and Accounting
DuPont system
Project description
READ THE BELOW REGARDING DUNPONT SYSTEM. IN 250 WORDS COMMENT ON THE READING.
The DuPont system of analysis is a diagnostic tool that uses financial ratios to evaluate a company’s financial health.” Parrino, 2012. This system is usually performed in 3 steps. At the onset of the system, the ratios are applied by the managers to assess the financial condition of the company. If issues are identified at the stage, the managers then correct and lastly, monitor going forward.
The system enables management to focus on 3 aspects of business: the operating management, management of assets and the capital structure using two different formula to determine the ROE (Return on Equity). Most companies look to have a high ROE but it’s important that the ROE shows a healthy use of debt and not an overuse of debt. This is why monitoring is essential to the business. The sooner management is able to apply this method, the sooner they will be able to identify and correct problems that may stifle their financial growth.
Parrino, R., Kidwell, D. S, & Bates, T. W. (2012). Fundamentals of corporate finance (2nd ed). Hoboken, NJ: Wiley
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