Question

Assess the purpose of using the DuPont system for analysis. Explain how the factors in the DuPont equation influence the ROA equation.

please provide a detailed answer

Answer 1

DuPont analysis is used to depict how company can use various resources in order to increase the return on equity of the investor and they are always trying to enhance the return on investment through a better utilisation of their assets in order to satisfy the investor through providing them with a higher rate of return on their equity.

The primary motive of this analysis is satisfaction of the equity shareholders and maximization of the wealth of the equity shareholders by effectively using the resources of the company.

Factors for the DuPont analysis will be impacting the overall return on equity as proper utilisation of resources and Assets of the company will be increasing the efficiency of the company and it will lead to increase of the return of the Asset whereas a bad efficiency will be reported when there is not effective utilisation of the Assets of the company and hence the profits will be down of the company so return on equity should always be made after proper analysis oof the company's ability to utilise Assets.