Need help on calculating the DUPONT...?

Question

I have been searching like crazy for a long, laymen, easy, to understand explanation of HOW TO CALCULATE the DUPONT arithmetic calculation for stocls or financial ana... I have searched under all major financial websites for the DUPONT calculation, but all i get is a bunch of calculation that i undertsand them ONE BY ONE but what do they all have to do with DUPONT? could someone explain this to me PLEASE!! whats the use of it? tks!

BY THE WAY, DOES ANYONE KNOW WHERE I CAN FIND EXCERSICES ON HOW TO CALCULATE ALL OF THE EQUATIONS INVOLVED IN STOCKS AND SO ON? including bonds, funds, ETFs, Options, etc... Basically i am also looking for excercises for I to do and solve at my own time.

Answer 1

The DuPont ratio is only applicable to stocks. It breaks down the profitability of the company as measured by the "return on equity", or ROE, of a stock into its 3 primary components, Return on Sales, Asset Turnover and Leverage. ROE = Net Income / Shareholder's Equity. Return on Sales = Net Income / Total Sales. Asset Turnover = Total Sales / Total Assets. Leverage = Shareholder's Equity / Total Assets. The Return on Sales measures how much of the company's revenues fall to the "bottom line". The Asset Turnover measures the sales generated per dollar of assets (i.e. what investment in buildings & equipment are necessary to support the business). The Leverage measures the investment of the shareholders relative to the total assets of the company. (The other assets of the company are supported by the debt holders of the company). Companies with high Return on Sales and high Asset turnover and high leverage will have very high ROEs.

Note that the DuPont ratio is not applicable to bonds, mutual funds, ETFs, Options, etc.

Answer 2

This case study may help:

http://www.westga.edu/~bquest/2000/dowjones.html

As for what it has to do with the Du Pont corporation:

http://www.investopedia.com/terms/d/dupontanalysis.asp

By the way, both of those were found easily on Google via:

http://www.google.com/search?q="du+pont+analysis"

You may want to check out some of the links there for more examples and more information.