DuPont financial analysis system and the proposed improvements

[Abstract] DuPont financial analysis system is conducive to business performance evaluation to identify the crux of restricting the development of enterprises. But with the development of the times, the changing market environment, DuPont financial analysis system is being exposed deficiencies, so traditional DuPont analysis system can not fully satisfy the accurate analysis of corporate financial requirements. This paper analyzes the shortcomings of which, according to the traditional challenges faced by Du Pont Analysis System recommendations for improvement, and the advantages of improved Hou Dubang Analysis System made a brief elaboration.

[Keywords:] DuPont financial analysis system improved the advantages of improved

First, the DuPont system of financial analysis and consequences of the problems
1. DuPont analysis system does not include the capital cost of this important factor. Did not include the cost of the assets of the important factors which led to the existence DuPont analysis system defects can not be ignored. Enterprises to raise capital from shareholders at the appropriate assets to bear the cost of the enterprise can obtained from existing assets, in line with investor expectations of a minimum rate of return. If the only enterprise in the course of business net income as a measure of shareholder wealth to the standards, while ignoring the existence of the cost of assets will lead to business for the blind pursuit of short-term profits investment, to businesses adversely affected long-term development.

2. Interest in net profit margin of a single index. Simple interest margin of the indicators used to reflect the business's operational capacity, often lead to corporate managers in pursuit of high profits, high society, evaluation, and make wrong investment decisions enable enterprises to increase in the interest margin while the interests of the case and the actual damage. When the financial situation of enterprises operating in a trough, the operators tend to choose a net profit margin as long as they enhance the rights and interests, even if it will bring business loss projects to improve business performance to achieve the purpose, but this was the wrong decision to bring the surface only to the enterprise "profit" and actual "loss" of the unfavorable situation.

Further analysis of core indicators as the DuPont interest margin, compared with cash flow targets, not real, easily manipulated by the company. Cash flow statement is prepared under the cash basis can reduce the manipulation of space, so by cash flow analysis to evaluate the quality of corporate earnings and the ability to obtain cash, forecast future cash flow business, accurately determine the company's solvency.

3. Calculate the total return on assets "total assets" and "net profit" does not match. Total assets of all of the rights of those assets, and net profit is dedicated to shareholders, and the two do not match. As the total assets of margin and "input and output" no match, the indicators can not reflect the actual rate of return. In order to improve the ratio, to re-adjust the numerator and denominator.

4. Can not effectively meet the needs of enterprises to strengthen internal management. The one hand, DuPont analysis mainly using return on equity, assets, net profit, equity multiplier, and other major financial indicators comprehensive analysis of the relationship between the financial situation of enterprises. The main source of information in corporate financial statements of the past, in fact, is the use of financial information on enterprises over the past financial situation of the past. On the other hand, the data used in this method mainly due to the financial statements, failed to make full use of cost analysis data, risk analysis data and other management accounting information, is not conducive to enterprises to strengthen internal controls.

5. Fails to reflect the company's business risk and financial risk. In the fierce market competition, business risk is impossible to avoid, and operational risk will lead to financial risk. Such as: poor product sales or product will give companies lower prices income resulting uncertainty; rate increase will increase the financial costs, increased financing costs, thus affecting corporate profits, causing financial risk. in the increasingly fierce competition in the current market circumstances, the risk of greater need for attention.

6. Does not reflect the Economic and technical indicators of listed companies. If equity shares, net assets per share, the consolidated income statement of the "minority current revenue" projects. DuPont financial analysis of existing system, the net rate of return on assets core indicators there are some problems, it is not compliance with the listing requirements of the company to maximize shareholder wealth. shareholder wealth maximization is the recognition of the future value of the enterprise, taking into account time value and risk factors, and net assets under the accrual rate reflected in the financial statements, can not measure shareholder value.

7. The current system used by DuPont data from the balance sheet, income statement, profit distribution statement and does not reflect the cash flow. Profit targets in the financial analysis system to play the role of a connecting link connection, but provided profit targets much weaker than the cash flow of financial information. because in practice, the cash flow for a smooth business activities are of crucial importance, is the financial analysis of cash flow information on the company's financial position are to make accurate judgments of the significant basis. by financial analysts cash flow analysis, cash flow can be sources of business, structure, quantity, and other important information, which can be real assets of the business efficiency and the ability to generate cash to make the right judgments, and thus can thus understand the solvency of enterprises, and infer the company's future financial trends.

Second, multi-angle Du Pont Analysis System Improvement
1. From the point of view indicators
For listed companies, earnings per share, net assets and shareholders equity per share, net profit margin are the three most important financial indicators of financial and securities institutions regularly publish information in accordance with the level of the three financial indicators listed companies sorted list. Based on shareholders of listed companies to maximize financial goals, choose the company to better reflect superior management capabilities of the most important financial indicators, "earnings per share" as a core indicator, according to earnings per share, net assets per share, return on net assets the relationship between to its original mode decomposition adjusted as follows:
Earnings per share = Shareholders equity per share, net profit margin of net assets ��
Earnings per share is a measure of the profitability of listed companies the most important financial indicators, which reflects the common stock of the profit levels that affect stock prices of listed companies is an important financial measures. In general, to achieve earnings per share if the maximum, it means that the realization of shareholder wealth maximization, therefore, earnings per share of companies maximize shareholder wealth consistent with the financial management objectives.

2. From the perspective of the financial statements
(1) financial analysis system of sustainable development into DuPont financial analysis system. The introduction of sustainable development, financial analysis system among the Du Pont system of financial analysis, ratio of the core of sustainable development indicators to profitability for the enterprise core competencies, a good dividend policy as the basis. According to the profitability ratios, asset management, debt management ratios ratios and the intrinsic link between the three, on the enterprise's financial position and operating results and profit sub-scene analysis and evaluation of integrated systems, which make up the DuPont financial analysis system deficiencies. Therefore, the financial analysis system for sustainable development:
Dividend payout ratio = total dividends paid in cash net profit after tax ��
Retained earnings ratio = net profit - net profit �� total payment of cash dividends
Sustainable development ratio = net profit - the total payment of cash dividends �� 100% of average net assets Return on net assets = (1 - dividend payout ratio) = main business margin return on total assets �� �� �� retained earnings ratio of equity multiplier

Links to Research Papers Download http://www.hi138.com (2) the introduction of the cash flow statement DuPont financial analysis system. The traditional system of DuPont financial analysis data from the balance sheet and income statement of cash flow statement The information provided is not to use it. and after the introduction of the cash flow analysis. Du Pont Analysis System data from the company makes financial analysis of the three statements of a more comprehensive and integrated.

3. Business value perspective
Ability to foster sustainable development of enterprises, enterprise development to overcome the short-sighted behavior is the fundamental value of the business include not only financial benefits but also social benefits. Any business wants to sustainable development, in addition to optimize the financial indicators, should also be fully integrated to improve business competitiveness. As a society, individuals, companies both independent in the community, but also depends on the community, must bear the corresponding social responsibilities. in corporate financial management, the company's ultimate goal is to reach its maximum value. However, in their own assessment of the value in both the above financial indicators, but also indispensable, including the social competitiveness index. (1) customer satisfaction index. (2) indicators of environmental responsibility. (3) integrity indicators. (4) staff team responsibilities indicators.

4. From a cost point of view of the state to improve
To make better use of management accounting in the improvement of internal accounting data and financial situation of enterprises, can be related to the cost of introducing the concept of state DuPont financial analysis. Through the use of DuPont financial analysis to identify ways to improve business conditions and the DuPont Financial analysis and cost control has to predict the effect, the specific breakdown is as follows:
ROE = net profit margin �� Asset equity multiplier = sales margin �� Asset Turnover �� interest rate �� multiplier = margin of safety marginal contribution rate �� (1 - tax rate) �� Asset Turnover �� equity multiplier
Margin of safety margin of safety ratio = �� expected sales volume = (expected sales - guaranteed sales) �� expected sales
Marginal contribution rate = contribution margin �� unit price = (price - unit variable cost) �� Price
Third, the improved system of the main advantages of Du Pont Analysis
1. Can promote the further development of business management accounting. Joined DuPont after the cost of the state of financial analysis on the use of the management accounting system accounting information, promote further development of business management accounting; the sales margin rate of decomposition of the safety margin, the marginal contribution rate and the income tax rate will help enterprises under the management of accounting information for short-term use of DuPont analysis business decisions; the costs into variable costs and fixed costs, variable costs and can combine the properties of fixed costs, the cost of taking on different characteristics of effective measures to reduce costs.

2. Reveals the income tax rate of return on equity. Introducing the tax indicators DuPont analysis, both the equity return on assets Return on equity �� ratio, return on assets = profit margin �� asset turnover, return on sales = (Net sales - cost - income tax) �� net sales can be seen that the change of income tax return on equity has a direct impact. income tax reduction, to improve the return on equity, income tax increase, the lower return on equity.

3. To timely and accurately reflect the financial situation and abnormal fluctuations. Enterprises are facing financial risk can not be ignored, when the company's financial position endanger the survival and development, there is a reasonable target should be to arouse the attention of management authorities . corporate financial officers need to keep abreast of changes in financial situation of enterprises to adapt to environmental changes, timely development and adjustment of the financial strategy, which requires financial management system of indicators to reflect the financial position of the small and transient changes. from a financial reports point to the improved system of response to Du Pont financial analysis of this request will be decomposed into operating profit margin of net assets and net assets of the cash index returns, from the perspective of cash flow evaluation of the authenticity of the book profit enterprises, reliability, reflect the quality of corporate profits, which determine whether the manipulation of corporate profit behavior book provides help to more accurately reflect the profitability of the business.

4. Linked to the business performance of the enterprise to make a fair assessment. From the perspective of business value to the improved system of DuPont financial analysis of the financial benefits linked to social benefits, the two companies combined evaluation of performance. Whether or business managers level employees, their contribution to the enterprise is not the same, only the performance of each member to make a reasonable assessment of performance to be recognized in order to fully mobilize them, and continue to contribute to the development of enterprises. This fully the existing use of the enterprise social resources, standing on a higher point of view of business performance and reasonable to do a comprehensive evaluation.


References:
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[2] Zheng-Jun Liu, Wu Yonglan. DuPont system of financial analysis of the development of new [N]. Xiangtan University, 2006, (7).

[3] China Certified Public Accountants. Financial cost management [Z]. Economic Science Press, 2008, (4).

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