A study of DuPont model: its application and identification of key determinants for public limited companies

Smita Jape and Meenakshi Malhotra

International Journal of Business and Globalisation, 2023, vol. 35, issue 1/2, 173-202

Abstract: DuPont model is a very significant tool to analyse the financial evaluation of the organisation. It takes into account the three important parameters turnover, liquidity and profitability of the organisation. The foremost objective of this paper is to explore and validate the different components of the DuPont model for public limited companies for the time period 2009-2016 for 13,189 companies. The data has been analysed using ratio analysis, indexation, common size statement, correlation analysis and multiple regression. The results of the study show that return on capital employed (ROCE) is the most important parameter of return on equity (ROE) which is significantly influenced by margin of safety, profit volume ratio (P/V ratio) and asset turnover ratio. Out of these three, the most significant factor is margin of safety (MOS). ROE is more sensitive to profitability as compared to turnover and leverage. The analysis and validation of DuPont is useful for financing, operating and investing decisions for any organisation.

Keywords: DuPont model; liquidity; public limited companies; return on capital employed; ROCE; return on equity; ROE; validation. (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:ids:ijbglo:v:35:y:2023:i:1/2:p:173-202

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