Profitability analysis with Du Pont system

This method was developed by Du Pont de Nemours for a good number of years and tries to explain the production of the profitability of an investment based on two factors:1. - Rotation of assets.Two. - Percentage of overall profit or sales margin.The first might be the number of times that sales cover net assets and in the second the percentage of overall profit (profit after taxes + financial expenses) on sales. The concepts of investment and performance may vary from one author to another depending on the accounting items that include. Some version includes a third factor: "leveraging", especially when you want to determine the return on equity. In short, the equation that applies here as follows:•% Return on assets = Rotation X% of profit on sales•% Return = Sales / Assets X (100 x Global Profit / Sales)Many analysts believe that these two parameters (asset turnover and sales margin) are very representative in the management and control of a company or business. The variation of asset returns can be obtained by varying the overall profit margin and asset turnover varying, or by combining both. The performance must be conducted on the variables behind each parameter.The system is usually presented in a graph, which is decomposed, in sequence, the profitability of the company in the two ratios discussed, detailing the accounting variables that contribute to them. The following Excel template makes this chart from basic data balance sheet and income statement.Its implementation provides an understanding and explanation of how they get business profitability, which can be compared with others in the same industry or the same in different periods. It is interesting to see how certain activities obtained via rotations profitability compared with other base their strategy on high margins. For example, industrial companies with large assets, the asset turnover is low and therefore the yield is to be obtained with high margins, compared to Supply trade and services companies with high asset turnover and therefore, sales or profit margins lower.
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