The du Pont formula is used for detailed financial analysis of ROI (Return of Investment) (We failed a candidate in a panel examination when the candidate can not explain what ROI is)
Thus du Pont formula (which SEC also requires in financial reporting is:
Income Margin x Turn Over x Leverage = ROI
Patong Paikot Laway
DI BA GREEN?!
Net income/sales Sales/Total Assets Total Assets/Stockholders equity
Cancelling out common terms, sales and total assets = Net Income/Stockholders equity
Thus to increase your ROI you have to do any of the following:
1. Increase margin (raise prices or reduce cost)
2. Reduce total assets (via outsourcing, reducing receivables and inventory)
Thus BPO and outsourcing is simply following this formula
3. Increase borrowing to reduce your Stockholders Equity
You do not need consultants or high caliber Auditing firms to improve your financial performance.
Thus a milk company narrated that during a financial crisis in the 1980s survived by doing these things:
1 Sale with leaseback of their plant and equipment;
2. Floor financing of their receivables
3. Discounting of receivables
Remembering this formula opens up innovation for financial management.
