Reference no: EM131606203

DuPont analysis is a potentially helpful tool for analysis that investors can use to make more informed choices regarding their equity holdings. The primary advantage of DuPont analysis is the fuller picture of a company's overall financial health and performance that it provides, compared to more limited equity valuation tools. It also helps in understanding whether profitabilty has been acheived through actual performance or through incresing leverage. A main disadvantage of the DuPont model is that it relies so heavily on accounting data from a company's financial statements, some of which can be manipulated by companies, so they may not be accurate. it analyses operational efficiency through sales turnover component solvency through equity multiplier component and profitability through net profit margin thus it analyzes performance over 3 ratio groups.