What is DuPont analysis? Briefly describe the principle of DuPont analysis.

DuPont Analysis comprehensively analyzes the financial situation of an enterprise by using the relationship between several major financial ratios. Specifically, it is a classic method to evaluate the profitability of the company and the level of return on shareholders' equity, and to evaluate the performance of the company from the financial point of view. Its basic idea is to decompose the return on net assets of enterprises into the product of multiple financial ratios step by step, which is helpful to deeply analyze and compare the operating performance of enterprises. Because this analysis method was first used by DuPont Company in the United States, it was named DuPont analysis method.

the basic idea of DuPont analysis

1. The net interest rate on equity, also known as the rate of return on equity, is the most comprehensive financial analysis index and the core of DuPont analysis system.

2. The net interest rate of assets is the most important indicator affecting the net interest rate of equity, which has strong comprehensiveness, and the net interest rate of assets depends on the net interest rate of sales and the turnover rate of total assets. The turnover rate of total assets reflects the turnover rate of total assets. To analyze the asset turnover rate, it is necessary to analyze the factors that affect the asset turnover, so as to identify the main problems that affect the company's asset turnover. The net profit rate of sales reflects the income level of sales revenue. Expanding sales revenue and reducing costs is the fundamental way to improve the profit rate of enterprises, and expanding sales is also the necessary condition and way to improve the asset turnover rate.

3. The equity multiplier indicates the debt level of the enterprise and reflects the degree to which the company uses financial leverage to conduct business activities. The higher the asset-liability ratio, the greater the equity multiplier, which shows that the company has a high degree of debt, and the company will have more leverage interests, but the risk is also high; On the other hand, if the asset-liability ratio is low, the equity multiplier will be small, which means that the company will have less leverage interests and lower corresponding risks.