dupont convert

8/9/2019 Dupont Convert

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in t*e mar.et and ma.es t*em to earn more' 3*is is t*e reason t*e resear*er attempts to e=aluate t*e finanial

performane of p*armaeutial industr/ in India using ,uPont nal/sis'

2.Concet of DuPont !odel

or an/ 7usiness in t*e pri=ate setor t*ere are numerous of models to desri7e *o ell t*e 7usiness is running'

mong t*ese t*e ,uPont model as reated in t*e earl/ 1900s 7ut is still a model =alid to use for assessment oft*e profita7ilit/' Csing t*e ,uPont model for ris. anal/sis is not =er/ ommon 7ut if /ou as a ris. anal/sis sp

e- ialist ant to tal. t*e language of t*e 7usiness& it an 7e =alua7le to /ou'

3*e model as reated 7/ ' ,onaldson Bron *o ame up it* t*e model *en *e as assigned to

lean up t*e finanes in eneral Motors and *as e=er sine 7een an important model for finanial anal/sis' e-

mar.a7l/ it *as not 7een used in t*e seurit/ ommunit/ for ris. prioritiDation or impat anal/sis' 3*e original

,uPont met*od of finanial ratio anal/sis as de=eloped in 191! 7/ an engineer at ,uPont *o as *arged

it* understanding t*e finanes of a ompan/ t*at ,uPont as a?uiring' e notied t*at t*e produt of to

often-omputed ratios& net profit margin and total asset turno=er& e?uals return on assets (#' 3*e elegane of

# 7eing affeted 7/ a profita7ilit/ measure and an effiien/ measure led to t*e ,uPont met*od7eoming

a idel/-used tool of finanial anal/sis ;iesD& (2002' In t*e 19F0:s& emp*asis in finanial anal/sis s*ifted from

# to return on e?uit/ (#E& and t*e ,uPont model as modified to inlude t*e ratio of total assets to

e?uit/'

Before disussing t*e me*anis and usefulness of ,u Pont& it ma/ 7e of some interest to learn a7out its

de=elopment' 3*e maturation of t*e ,u Pont model parallels t*e progress made in t*e field of finanial anal/sis

itself' 3*ree distint =ersions of ,u Pont *a=e 7een reated and used to *elp unra=el t*e underl/ing dri=ers of

profita7ilit/ and return o=er time& 7eginning nearl/ 90 /ears ago'

In 191!& four /ears after *e as *ired 7/ t*e E' I' du Pont )orporation of Kilmington&

,elaare& to or. in its treasur/ department& eletrial engineer ' ,onaldson Bron as gi=en t*e tas. of

untangling t*e finanes of a ompan/ of *i* ,u Pont *ad >ust pur*ased 2" perent of its sto.' (3*is om-

pan/ as eneral MotorsL Bron reogniDed a mat*ematial relations*ip t*at eeti=es of a for-profit 7usiness primaril/ onern t*e needs of t*e e


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#3I 6 Assets ,urno$er &3erating Income > ,otal Assets+ > Profit !argin &7I, > 3erating Income+

awawini and @iallet &1(((+ offered /et anot*er modifiation to t*e ,uPont model' 3*is modifiation resulted

in fi=e different ratios t*at om7ine to form #E and #I' In t*eir modifiation t*e/ a.noledge t*at t*e fi-

nanial statements firms prepare for t*eir annual reports (*i* are of most importane to reditors and ta< ol-

letors are not ala/s useful to managers ma.ing operating and finanial deisions'

In order to more effeti=el/ e=aluate operational managers& ?issim B Penman &2//1+ suggest using a modified=ersion of t*e traditional ,uPont model in order to eliminate t*e effets of finanial le=erage and ot*er fators

not under t*e ontrol of t*ose managers' Csing operating inome to sales and asset turno=er 7ased on operating

assets limits t*e performane measure of management to t*ose fators o=er *i* management *as t*e most

ontrol' 3*e modified ,uPont model *as 7eome idel/ reogniDed in t*e finanial anal/sis literature' See& for

eust a fe indiators of 7an. profita7ilit/ an 7e

misleading' K*ile #I& #E& and interest margin (and non interest e


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t*e return on e?uit/' Net profit margin and total asset turno=er e


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,able 1: howing #37 B #3I for Cila Pharmaceutical

1.A. #eturn on 7


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,able 2: howing #37 B #3I for Dr. #eddy;s %aboratories

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90

,able ": howing #37 B #3I for #anbaHy Pharmaceutical

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apital' Profits earned 7/ a ompan/& ta.en t*e a7solute amount& pro=ides an o=er=ie of a ompan/:s ati=it/

it*out gi=ing details a7out t*e e

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