Limitations of DuPont analysis method

Net interest rate on equity = net operating interest rate × total assets turnover rate × equity multiplier

1. The "Total Assets" and "Net Profit" for calculating the net interest rate of total assets do not match.

Total assets are enjoyed by all asset providers (including creditors and shareholders with interest-free and interest-bearing liabilities), while net profits are exclusively enjoyed by shareholders. The two do not match and cannot reflect the actual rate of return.

2. There is no difference between the profit and loss of financial activities and the profit and loss of business activities.

For most companies, financial activities are net financing, and financing is mainly in the financial market, rather than investment, which should be distinguished from business activities.

3. There is no difference between financial assets and operating assets.

From the perspective of financial management, financial assets are assets that have not been put into actual business activities and should be distinguished from operating assets.

4. There is no difference between financial liabilities and operating liabilities.

On the one hand, there is no fixed cost and leverage in operating liabilities, and the inclusion of financial leverage will distort the actual effect of leverage; On the other hand, only by distinguishing financial liabilities from operating liabilities can we accurately calculate the actual average interest rate (interest-financial liabilities) and actual financial leverage (financial liabilities-shareholders' equity).