DuPont Analysis

DuPont Analysis, or DuPont Identity, offers a more

detailed analysis when evaluating the return-on-
Investment (ROI) of a company.
The measure was conceived by the DuPont
Corporation in the 1920s to evaluate profitability,
operating efficiency and leverage, all within the ROE
analysis.
Many financial analysts believe that the DuPont
Analysis provides an excellent snapshot of a
company’s financial strength.
 Traditional ROE v. DuPont Analysis

• The return-on-equity measure is widely used by

investors to determine how efficiently a company
is using its money.
• There are two ways of calculating ROE:
• The traditional approach and the DuPont formula.
• Under the traditional formula, the company’s net
profit after taxes for the past 12 months is divided
by shareholder equity. As this approach fails to
account for the effect of borrowed funds, the
DuPont Analysis formula was developed to link
the use of debt to the outcome.
• The idea behind the more detailed DuPont
Analysis is that companies that demonstrate
a higher ROE with minimal debt can expand
without large capital outlays, allowing its
owners to access cash generated by the
business for consumption or re-investment.
• In other words, two companies can have the
same ROE, yet one may be much more
efficient.
• Dupont Analysis is an approach to analyse the
firm by evaluating inter relationships among
many of the performance measures.
• In the Dupont Analysis we try to find out what
are the factors/drivers that are causing the
profits to move up. By identifying these
factors/drivers we can concentrate on them and
improve our efficiency.
 comparative analysis
• Definition
• It is an Item by item comparison of two or more
comparable alternatives, processes, products,
qualifications, sets of data, systems, etc.

• In accounting, for example, changes in a

financial statement's items over several
accounting periods may be presented together
to detect the emerging trends in the firm's
operations and results.
• Comparative Performance - Comparison between
similar firms.
• These ratios are calculated by dividing a (group of)
account balance(s), taken from the balance sheet and /
or the income statement, by another, for example :
– Net income / equity = return on equity (ROE)
– Net income / total assets = return on assets (ROA)
– Stock price / earnings per share = P/E ratio
Comparing financial ratios is merely one way of
conducting financial analysis.
Inter firm and intra firm comparision
• Inter means different and intra means with
in the company or departments. It helps
in:-
• a) It identifies specific areas of in business
which may need managerial attention
• b) It provides information to management
on a uniform basis.
 Trend Analysis
• An aspect of technical analysis that tries to
predict the future movement of a stock
based on past data. Trend analysis is
based on the idea that what has
happened in the past gives traders an
idea of what will happen in the future.

There are three main types of trends:

short-, intermediate- and long-term.
• Trend analysis is a form of comparative
analysis that is often employed to identify
current and future movements of an
industry or group of firms.
• The process may involve comparing past
and current financial ratios as they related
to various institutions in order to project
how long the current trend will continue.
• This type of information is extremely
helpful to investors who wish to make the
most from their investments.
 Inflation Accounting
• Inflation Accounting is a financial reporting
procedure which records the consequences of
inflation on the financial statements that a
company prepares and publishes at the end of
the financial year. The Inflation Accounting
solution allows you to adjust your accounts for
inflation.

• Inflation Accounting is also referred to as the

Price Level Accounting.

• One of the most important and basic principles of

the accounting process is known as 'The
Measuring Unit Principle'. The standard of
measurement is the currency which is the most
relevant one in the economy.
• The changes in the purchasing power is not
deemed important to be considered. The
assumption is that the value of the currency
is fixed.

Inflation accounting is a term describing a range

of accounting systems designed to correct
problems arising from historical cost accounting
in the presence of inflation.
The impact of inflation on business can be
bifurcated into two parts like

1. Impact on costs and revenue

2. Impact on assets and liabilities.
Human Resource Accounting
• Human Resource Accounting is a method to
measure the effectiveness of personnel
management activities and the use of people in
an organization.
• There are two approaches to HRA. They are as
follows:
• 1. Cost approach:- Cost approach is also called
human resource cost accounting method or
model.
• Under this there are two important model:
• a) Acquisition cost model
• b) Replacement cost model
• This method measures the organization’s investment in
employees using the five parameters:
• recruiting, acquisition; formal training and, familiarization;
informal training, Informal familiarization; experience; and
development.
• The costs were amortized over the expected working lives of
individuals and unamortized costs (for example, when an
individual left the firm) were written off.

2. Value approach :- Under the value approach there are three

important approaches. They are:-
a) Present value of future earnings method.
b) Discounted future wage model
c) Competitive bidding model

It is an economic valuation of employees based on the present

value of future earnings, adjusted for the probability of
employees’ death/separation/retirement. This method helps in
determining what an employee’s future contribution is worth
today.
 Social Accounting

Social accounting is a method by which a

business seeks to place a value on the impact
on society of its operations.
This might include the following impacts on the
environment: waste; the effect on society of the
packaging it produces; and how much fuel it
uses in its company cars.
It can also include the effect on the local
community who might have to live in the shadow
of its premises, and how it engages with the
community, its customers and workforce.
• Social accounting (also known as social and
environmental accounting, corporate social
reporting, corporate social responsibility
reporting, non-financial reporting, or
sustainability accounting) is the process of
communicating the social and environmental
effects of organizations' economic actions to
particular interest groups within society and to
society at large.
• Many companies now prepare social accounting
reports and appendices to their annual report
and accounts as a matter of routine.
•
• Social accounting emphasises the notion
of corporate accountability.
• D. Crowther defines social accounting in
this sense as "an approach to reporting a
firm’s activities which stresses the need
for the identification of socially relevant
behavior, the determination of those to
whom the company is accountable for its
social performance and the development
of appropriate measures and reporting
techniques.”
• Social accounting, a largely normative concept,
seeks to broaden the scope of accounting in the
sense that it should:
• concern itself with more than only economic events;
• not be exclusively expressed in financial terms;
• be accountable to a broader group of stakeholders;
• broaden its purpose beyond reporting financial
success.
• The purpose of social accounting can be
approached from two different angles, namely for
accountability purposes and management control
purposes.
• Accountability
• Social accounting for accountability purposes is
designed to support and facilitate the pursuit of
society's objectives. Society is seen to profit from
implementing a social and environmental
approach to accounting in a number of ways,
e.g.:
• Honoring stakeholders' rights of information;
• Balancing corporate power with corporate
responsibility;
• Increasing transparency of corporate activity;
• Identifying social and environmental costs of
economic success.
• Management control :- Social accounting for the
purpose of management control is designed to
support and facilitate the achievement of an
organization's own objectives.
• Organizations are seen to benefit from implementing
social accounting practices in a number of ways.

• Increased information for decision-making;

• More accurate product or service costing;
• Enhanced image management and Public Relations;
• Identification of social responsibilities;
• Identification of market development opportunities;
• Maintaining legitimacy.
 Computerised accounting
• The purpose of accounting is to provide information
used in decision making. Accounting may be viewed
as a system (a process) that converts data into
useful information.

• Information processes include:

• Recording
• Maintaining
• Reporting

• This is where a computerized accounting helps

simplify, integrate, and streamline all the business
processes, cost-effectively and easily.
 Salient Features of
Computerized accounting
• 1. Fast, Powerful, Simple and Integrated
• 2. Complete Visibility
Computerized accountings giving the company
sufficient time to plan, increase the customer base,
and enhance customer satisfaction.
• 3. Enhanced User Experience
• 4. Accuracy, Speed
5. Scalability
• Computerized accounting adapts to the current and
future needs of the business, irrespective of its size or
style.
• 6. Power
• Computerized accounting has the ability to
handle huge volumes of transactions
without compromising on speed or
efficiency.
• 7. For Improved Business Performance
• 8. Quick Decision Making
•
9. Complete Reliability