The DuPont Model Decomposes the Original ROI Formula into Two

question 105

Essay

The DuPont Model decomposes the original ROI formula into two components to show the different choices managers have to improve ROI.What are the terms for the two components and how do you calculate the ratios?

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Definitions:

Average Total Assets

The mean value of all the assets a company owns, calculated over a specific period of time, typically used to assess company size or efficiency.

Prepaid Rent

Prepaid rent refers to payments made for rent in advance before it is due, recorded as an asset on the balance sheet until the period to which it applies passes.

Stockholders' Equity

Represents the residual interest in the assets of a corporation after deducting liabilities, which is the ownership interest of shareholders in a company.

Expenses

The outflow of money to another person or company to pay for an item or service, or for a category of costs.