From the course: Corporate Financial Statement Analysis
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Applying the DuPont framework
From the course: Corporate Financial Statement Analysis
Applying the DuPont framework
- In the area of financial ratios, the DuPont framework might be the most well-known ratio there is. Over 100 years ago, an accountant at DuPont, F. Donaldson Brown, created a way for a company to compare operating performance in various different divisions. DuPont was a vertically integrated company, and management often had to compare really different projects. Mr. Brown created a financial ratio analysis framework that combined measures of profitability, efficiency, and leverage into one overall measure of performance that allows comparisons in performance across divisions within a company, and even across companies. Now, the DuPont framework has three components: profitability, efficiency, and leverage. Let's start with leverage because that's the first thing that we do. When it comes to leverage, that's an indication of how much money have we borrowed to purchase assets? Now, why do we purchase assets? Well, we…
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