DuPont Analysis

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DuPont Analysis

An alternative calculation of the return on equity of an investment. DuPont analysis utilizes the investment's gross book value instead of its net book value. It is calculated as:

(Profits / Sales) * (Sales / Assets) * (Assets / Equity) = DuPont Analysis return on equity

The theory behind DuPont analysis states that forms of return on equity using net book value discourage investment in new, potentially risky ventures because they underestimate the return for the first few years of the investment. The DuPont calculation attempts to remedy this situation.
References in periodicals archive ?
Fret no more because the answer to the above-mentioned questions is called the DuPont Analysis, also known as DuPont Identity. This technique is a more granulated analysis of ROE using three financial ratios.
The student must assess the real estate industry environment using Porter's five-force model of competitive strategy and the DuPont identity. Valuation techniques employed include the capital asset pricing model, the two-stage dividend-discount model, the P/E valuation approach, and the Gordon model.
The student must assess the competitive environment of Strayer using the DuPont identity and Porter's five force model of competitive strategy as well as estimate the value of the stock.
The student must assess the competitive environment of EOP using the DuPont identity and Porter's five force model of competitive strategy as well as estimate the value of EOP stock.