The DuPont System of Financial Analysis

Added on - 15 Jan 2021

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Financial Analysis
DuPont Method:DuPont method or analysis is a technique of assessing an organisation's profitability ofreturn on equity in three parts (Kostova and et.al., 2018). It is an fundamental analysis whichmeasures performance of a company. The name “DuPont” is derived from Dupont Corporationwhich pinned this analysis using a formula in 1920s. This formula of DuPont helps to determineand evaluate profitability using return on equity(ROE) ratio (Dupont formula,2018.). Formula ofDuPont is mentioned below:ROE (DuPont formula) = Net profit margin * Assets Turnover * Financial leverageWhere,Net profit margin = Net profit / RevenueAssets Turnover = Revenue / Total assetsFinancial leverage = Total Assets / EquityIn this project report, financial statements of two companies are analysed in order toascertain their level of profitability by using DuPont formula.NRW Holdings:The First company which is selected is NRW Holdings Limited and their analysis isperformed and attached in appendix.Interpretation:By developing above determination of profitability, it has been analysed that thiscompany has an increasing trend in their profit earnings. As ratio of profitability in 2018 is morethan in 2017 that is 0.3427779184 and 0.2955900599. The reasons behind this profit change caninclude various aspects such as Total assets; Overall equity maintained by the company isincreasing in the year of 2018 that is 520187000 from 331566000. Another reason is total equity;equity is the different between net total assets and liabilities which influences profit severely.Increase in total equity is another major aspect due to which profit is increased. To evidence thisstatement, it can be seen in above table that equity has been increased from 199073000 (2017) to272643000 (2018).Reliance Worldwide Corporation Limited:The second company which has selected is RWC and its analysis is performed andattached in appendix.Interpretation:1
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