Traditional DuPont analytical framework

Dupont financial analysis method and its application example

Dupont analysis is a financial ratio decomposition method, which can effectively reflect the relationship between various indicators that affect the profitability of enterprises and make a reasonable analysis of the financial situation and operating results of enterprises.

Keywords: DuPont analysis method; Profitability; Financial status

Profitability is an important financial indicator of an enterprise. For owners, creditors, investors and the government, it is very important to analyze and evaluate the profitability of enterprises for their decision-making. Profitability analysis is also an important part of enterprise financial analysis by financial managers.

The traditional ratios to evaluate the profitability of enterprises mainly include: return on assets, marginal profit rate (or net profit rate), return on owners' equity and so on. For joint-stock enterprises, there are also profit per share, price-earnings ratio, dividend rate and dividend return rate. These single indicators are used to measure different factors that affect and determine the profitability of enterprises, including sales performance, asset management level and cost control level.

These indicators analyze the financial status and operating results of enterprises from a specific angle, which is not enough to comprehensively evaluate the overall financial status and operating results of enterprises In order to make up for this deficiency, there must be a method that can carry out interrelated analysis, combine relevant indicators and statements, and adopt appropriate standards for comprehensive analysis and evaluation, which not only comprehensively reflects the overall financial situation of enterprises, but also points out the internal relations between indicators and indicators, indicators and statements. Dupont analysis is one of them.

Dupont financial analysis system is a practical financial ratio analysis system. This analysis method was initiated by the manager of DuPont Company in the United States, so it is called DuPont Financial Analysis System. This financial analysis method starts with the most comprehensive and representative index to evaluate enterprise performance-net interest rate, and decomposes it into the use of the most basic production factors, the composition of costs and expenses and enterprise risks. Through financial analysis, the needs of performance evaluation can be met, and operators can find out the reasons and correct them in time when their business objectives change, and at the same time provide basis for investors, creditors and the government to evaluate enterprises.

I. DuPont analysis method and DuPont analysis diagram

Dupont analysis is a method to establish a comprehensive model of financial ratio analysis, comprehensively analyze and evaluate the financial situation and operating performance of enterprises by using the internal relationship between major financial ratios. Dupont analysis chart is used to arrange the relevant analysis indicators according to the internal relations, thus intuitively reflecting the financial situation and the overall appearance of the operating results of the enterprise.

Dupont financial analysis system as shown in the figure:

Net interest rate of equity

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Net interest rate of assets × equity multiplier

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Net profit rate of sales × total assets turnover rate

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Net profit/sales revenue/total assets

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Sales revenue-total cost+other profits-income tax, long-term assets+current assets

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Manufacturing+sales+management+financial cash+accounts receivable+other flows.

Costs, expenses, expenses, securities, accounts, inventory assets

Figure 1 DuPont analysis diagram

Second, DuPont analysis chart

1. The relationship between financial indicators in the diagram:

It can be seen that DuPont analysis actually analyzes finance from two angles, one is the analysis of internal management factors, and the other is the analysis of capital structure and risk.

Net interest rate of equity = net interest rate of assets × equity multiplier

Equity multiplier = 1÷( 1- asset-liability ratio)

Net interest rate of assets = net interest rate of sales × total assets turnover rate

Net profit rate of sales = net profit ÷ sales revenue

Total assets turnover rate = sales revenue ÷ total assets

Asset-liability ratio = total liabilities/total assets

2. DuPont analysis chart provides the following main information about the relationship between financial indicators:

(1) ROE is the most comprehensive financial ratio and the core of DuPont's analysis system. It reflects the profitability of the owner's capital investment, and also reflects the efficiency of the enterprise's fund-raising, investment, asset operation and other activities, and its level depends on the level of total asset profit rate and total equity asset rate. There are three factors that determine the net interest rate of equity-equity multiplier, net interest rate of sales and turnover rate of total assets. Equity multiplier, net sales interest rate and total assets turnover rate reflect the debt ratio, profitability and asset management rate of an enterprise respectively.

(2) The equity multiplier is mainly affected by the asset-liability ratio. The greater the debt ratio, the higher the equity multiplier, indicating that the higher the debt level of the enterprise, which will bring more leverage income and more risks to the enterprise. Net interest rate of assets is a comprehensive index, which is influenced by net interest rate of sales and asset turnover rate.

(3) The net interest rate on assets is also an important financial ratio and comprehensive. It is the product of the net profit rate of sales and the turnover rate of total assets, so it should be further analyzed from two aspects: sales results and asset operation.

The net profit rate of sales reflects the relationship between the total profit of the enterprise and the sales revenue. In this sense, improving the net profit rate of sales is the key to improve the profitability of enterprises. Improve the net profit rate of sales: first, expand sales revenue; The second is to reduce costs. Reducing various costs and expenses is an important content of enterprise financial management. By listing all kinds of costs and expenses, it is helpful for enterprises to analyze the structure of costs and expenses, strengthen cost control, and provide basis for seeking ways to reduce costs and expenses.

The operating ability of enterprise assets is related to both the profitability and the solvency of enterprises. Generally speaking, current assets directly reflect the solvency and liquidity of enterprises; Non-current assets reflect the business scale and development potential of an enterprise. There should be a reasonable structural ratio between the two. If the cash held by the enterprise exceeds the business needs, it may affect the profitability of the enterprise. If enterprises occupy too much inventory and accounts receivable, it will not only affect profitability, but also affect solvency. Therefore, it is necessary to further analyze the occupied amount and turnover speed of various assets. For current assets, it is important to analyze whether there is inventory backlog, whether monetary funds are idle, and the customer's ability to pay and the possibility of bad debts of accounts receivable; For non-current assets, we should focus on whether the fixed assets of enterprises are fully utilized.

Thirdly, the example is analyzed by DuPont analysis method.

Dupont's financial analysis method can explain the reasons and trends of index changes and point out the direction for taking measures. Taking the listed company Beiqi Foton Motor (600 166) as an example, the application of DuPont analysis method is explained below.

The basic financial data of Foton Motor are as follows:

Table 1 unit: 10,000 yuan

Annual net profit, sales revenue, total assets, total liabilities and total cost of the project.

200 1 10284.04 4 1 1224.0 1 306222.94 205677.07 403967.43

2002 12653.92 7576 13.8 1 330580.2 1 2 15659.54 736747.24

(Source: Foton Motor 2002 Annual Report china securities journal)

The financial ratio of our company from 200/kloc-0 to 2002 is shown in the following table:

Table 2

Year 200 1 2002

The net interest rate on equity is 0.097 0. 1 12.

Equity multiplier 3.049 2.874

Asset-liability ratio 0.672 0.652

Net interest rate of assets 0.032 0.039

The net profit rate of sales is 0.025 0.0 17.

Total assets turnover rate 1.34 2.29

(A) the analysis of the net interest rate of equity

The net interest rate of equity is an index to measure the profitability of enterprises using assets. The net interest rate of equity fully considers the influence of financing methods on the profitability of enterprises, so the profitability it reflects is the result of the comprehensive action of many factors such as enterprise management ability, financial decision-making and financing methods.

From 200 1 to 2002, the company's return on net assets increased from 0.097 in 200 1 to 0.12 in 2002. To a great extent, investors of enterprises judge whether to invest or transfer shares, inspect the performance of operators and decide the dividend distribution policy according to this index. These indicators are also crucial to the managers of the company.

The company manager conducts financial analysis to improve financial decision-making. They can decompose the net interest rate into equity multiplier and net interest rate of assets to find out the cause of the problem.

Table 3: Analysis Table of Net Interest Rate of Equity

Net interest rate of Foton Motor = equity multiplier × net interest rate of assets

200 1 0.097 = 3.049 × 0.032

0.112 = 2.874× 0.039 in 2002.

Through decomposition, it can be clearly seen that the change of the company's net interest rate is the result of the change of capital structure (equity multiplier) and the change of asset utilization effect (net interest rate of assets). However, the net interest rate of the company's assets is too low, showing poor asset utilization effect.

(2) Decomposition analysis process:

Net interest rate of equity = net interest rate of assets × equity multiplier

200 1 0.097 = 0.032× 3.049

0.112 = 0.039× 2.874 in 2002.

The decomposition shows that the change of net interest rate is due to the change of capital structure (the reduction of equity multiplier) and the change of asset utilization and cost control (the net interest rate of assets has also changed). Then, we continue to break down the net interest rate of assets:

Net interest rate of assets = net interest rate of sales × total assets turnover rate

200 1 0.032 = 0.025× 1.34

0.039 = 0.0 17× 2.29 in 2002.

Through decomposition, we can see that the turnover rate of total assets has improved in 2002, indicating that the utilization rate of assets has been better controlled, showing a better effect than that of the previous year, indicating that the efficiency of generating sales revenue from total assets is improving. The increase of total assets turnover rate and the decrease of net sales rate hinder the improvement of net assets profit rate, and then we decompose the net sales rate into:

Net profit rate of sales = net profit ÷ sales revenue

200 1 0.025 = 10284.04 ÷ 4 1 12438+0.

In 2002, 0.017 =12653.92 244438+03.8438+0.

In 2002, the company's sales revenue increased significantly, but the net profit increased very little. The reason is the increase in cost. As can be seen from the table 1, the total cost in 2002 increased from 200 1 to 7367472400 yuan, which is roughly equivalent to the increase of sales revenue. The following is a breakdown of the total cost:

Total cost = manufacturing cost+sales expense+management expense+financial expense.

200 1 year 403967.43 = 373534.53+10203.05+18667.77+1562.08.

2002 736747.24 = 684559.9 1+2 1740.962+257 18.20+5026.6438+07.

Through decomposition, we can see that DuPont analysis method effectively explains the reasons and trends of index changes, and points out the direction for taking countermeasures.

In this case, the main reason for the low profit rate of equity is that the total cost is too large. It is precisely because of the substantial increase in various costs that the net profit has not increased substantially, while the substantial increase in sales revenue has caused the decrease in the net profit rate of sales, which shows that the company's sales profitability has decreased. The increase of net asset interest rate is attributed to the increase of total asset turnover rate, but the decrease of net sales interest rate has hindered it.

As can be seen from Table 4, the decline of Foton Motor's equity multiplier shows that their capital structure changed from 200 1 to 2002, and the equity multiplier in 2002 was lower than 200 1. The smaller the equity multiplier, the lower the debt level of the enterprise, the stronger the solvency and the lower the financial risk level. This indicator also reflects the influence of financial leverage on profit level. Financial leverage has both positive and negative effects. In the years with good returns, the potential returns to shareholders can be increased, but shareholders have to bear the risks brought by the increase in liabilities; In a year of poor profit, the potential return of shareholders may be reduced. The company's equity multiplier has been between 2 and 5, that is, the debt ratio is between 50% and 80%, which is a radical strategic enterprise. Managers should accurately grasp the company environment, accurately predict profits, and reasonably control the risks brought by liabilities.

Therefore, for Foton Motor, the most important thing at present is to reduce various costs and strive to control costs. At the same time, we should maintain a high turnover rate of our total assets. This can improve the profit rate of sales, and then greatly increase the net interest rate of assets.

Four conclusions

To sum up, DuPont analysis takes the net interest rate as the main line, and comprehensively links the sales performance and asset operation status of enterprises in a certain period of time, decomposes them layer by layer, and gradually deepens them to form a complete analysis system. It can help managers find the problems existing in enterprise finance and management, and provide very valuable information for improving enterprise management, so it has been widely recognized and widely used in practical work.

However, DuPont analysis is one of the financial analysis methods after all. As a comprehensive analysis method, it does not exclude other financial analysis methods. On the contrary, combining with other analysis methods can not only make up for its own defects and deficiencies, but also make up for the shortcomings of other methods, making the analysis results more complete and scientific. For example, based on DuPont analysis, combined with thematic analysis, some follow-up analysis is carried out to make a more in-depth and detailed analysis and understanding of related issues; You can also combine comparative analysis and trend analysis to compare the results of DuPont analysis in different periods, thus forming a dynamic analysis, finding out the law of financial changes, and providing a basis for forecasting and decision-making; Or combine some enterprise financial risk analysis methods to carry out necessary risk analysis, which also provides a basis for managers. So this combination is actually the need for DuPont to analyze its own development. Analysts should pay attention to this when applying.