DuPont Model

Knowledge Center


Managing the Current Profitability by using Traditional Performance Management Tools. Explanation of DuPont Analysis. ('19)

Contributed by: Cees A.J. Wiegel MBA, Montal Consultancy



What is the DuPont Model? Description

DuPont Analysis is a technique that can be used to analyze the profitability of a company using traditional performance management tools. To enable this, the DuPont model integrates elements of the Income Statement with those of the Balance Sheet. Is is also known as "DuPont Identity".

Origin of the DuPont Model. History

The DuPont model of financial analysis was made by F. Donaldson Brown, an electrical engineer who joined the giant chemical company's Treasury department in 1914. A few years later, DuPont bought 23 percent of the stock of General Motors Corp. and gave Brown the task of cleaning up the car maker's tangled finances. This was perhaps the first large-scale reengineering effort in the USA. Much of the credit for GM's ascension afterward belongs to the planning and control systems of Brown, according to Alfred Sloan, GM's former chairman. Ensuing success launched the DuPont model towards prominence in all major U.S. corporations. It remained the dominant form of financial analysis until the 1970s.

Calculation/Formula for DuPont Analysis

Return on Assets  =  Net Profit Margin  x  Total Assets Turnover  =  Net Operating Profit After Taxes / Sales  x  Sales / Average Net Assets

 DuPont Model


Usage of the DuPont Framework. Applications

  • The model can be used by the purchasing department or by the sales department to examine or demonstrate why a given ROA was earned.
  • When ROA is poor, you can perform a DuPont analysis to find and investigate parts of the business that are cuasing that.
  • Compare a firm with its colleagues.
  • Analyze changes over time.
  • Teach people a basic understanding how they can have an impact on the company results.
  • Show the impact of professionalizing the purchasing function.

Steps in the DuPont Method. Process

  1. Collect the business numbers (from the finance department).
  2. Calculate (use a spreadsheet).
  3. Draw conclusions.
  4. If the conclusions seem unrealistic, check the numbers and recalculate.

Strengths of the DuPont Model. Benefits

  • Simplicity. A very good tool to teach people a basic understanding how they can have an impact on results.
  • Can be easily linked to compensation schemes.
  • Can be used to convince management that certain steps have to be taken to professionalize the purchasing or sales function. Sometimes it is better to look into your own organization first. In stead of looking for company takeovers in order to compensate lack of profitability by increasing turnover and trying to achieve synergy.

Limitations of the DuPont analysis. Disadvantages

  • Based on accounting numbers, which are basically not reliable.
  • Does not include the Cost of Capital.
  • Garbage in, garbage out.

Assumptions of the DuPont method. Conditions

  • Accounting numbers are reliable.

DuPont Model Special Interest Group

Special Interest Group (169 members)

DuPont Model Forum  

Recent topics

  OTHER Current Assets in DuPoint Analysis
What could be items included in the category "Other' in Current Assets?...
  Compare Banks using DuPont
Can Dupont be used to compare the performance of banks? Can the same yard stick be used for large and small companies/banks in terms of working capita...
  DuPont Analysis for Banks
I’m an MBA student doing my project on the financial analysis of a bank and I would like to know how a DuPont analysis can be performed for banks. Wha...
  How to Use the DuPont Model
DuPont Model is a very ancient formula and it is very useful.
In the simpler expression = EBIT / Revenue * Revenue / funds engaged =....
  DuPont Identity
The DuPont method of performance measurement was started by the DuPont Corporation in the 1920s. With this method, assets are measured at their gross ...
  Limitiation of the Dupont Analysis
As a pre-requisite, accounting numbers should be reliable (based on adequate financial statements). However, the model itself may be customised (under...
  Cost of Capital not in DuPont Model?
You comment that the DuPont Model 'does not include the Cost of Capital'. Can this be accounted for in the (interest) expense portion of the P&L?...

Best Practices - DuPont Model
  Successor of DuPont Model?
You mention that the DuPont Model was the dominant financial performance tool until the 1970's. What models or tools have replaced it?...

Expert Tips - DuPont Model

Benefits of the DuPont Model

Performance Management
The DuPont Model has been around for nearly a century and is still a popular tool for performance ma...

Resources - DuPont Model

Dupont Analysis

Calculates a standard set of ratios based on input of financial data. By Glenn L. Stevens....

Industry-adjusted DuPont Anal.

Predict Profitability
Paper by Mark T. Soliman uses industry-adjusted Dupont Analysis to predicting future changes in RNOA...

Introduction to the Dupont Model

Introduction, Examples
Short explanation of the Dupont Model (Return on Net Assets - RONA Analysis).
It is a financial...

Dupont Model and Other Pyramid Formulas to Analyse Financial Statements

Financial Accounting, Financial Analysis
This presentation about the Dupont System includes examples and schemes to clarify the system. The f...

Quickly Reading a Profit and Loss Statement and a Balance Sheet

Profit and Loss Statement Analysis, Analyzing a P&L
This video explains that when we're reading a profit and loss statement as a director we should:

DuPont Model Diagram

Analyzing Financial Results
Download and edit this 12manage PowerPoint graphic for limited personal, educational and business us...

News about Dupont Model


News about Dupont Analysis


Videos about Dupont Model


Videos about Dupont Analysis


Presentations about Dupont Model


Presentations about Dupont Analysis


Books about Dupont Model


Books about Dupont Analysis


More about Dupont Model


More about Dupont Analysis


Compare with the DuPont Model: Return On Net Assets  |  Return on Equity  |  Economic Value Added  |  Performance Management

Return to Management Hub: Decision-making & Valuation  |  Finance & Investing  |  Supply Chain & Quality

More Management Methods, Models and Theory

Special Interest Group Leader

You here? Sign up for free


About 12manage | Advertising | Link to us / Cite us | Privacy | Suggestions | Terms of Service
© 2019 12manage - The Executive Fast Track. V15.0 - Last updated: 15-2-2019. All names ™ of their owners.