With the fast pace of modern society, the competitions between companies are becoming more fierce gradually. In order to catch the tide of financial progress, rational analyses are required for enterprise to understand a company’s financial situation and operational efficiency. As a result, entrepreneurs can judge their enterprises’ competitive position in the industry and sustainable development ability based on these analyses. DuPont analysis and factor analysis have been widely applied in enterprise financial analysis. Using these analysis methods can accurately calculate the various influence factors on the direction and extent of the influence of financial indicators, help enterprises to plan in advance, provide matter control and afterwards supervision, promote enterprises’ goal management and improve enterprise management level (Casella & Berger, 2002). Which analysis method is more informative for the analysis of corporate financial information? Admittedly, DuPont analysis plays a necessary role in financial analysis. While some experts are against this idea by claiming that factor analysis has a wider range of applications. This essay is aiming to explore the application of DuPont analysis methods in corporate financial management and whether this kind of analysis is more feasible than factor analysis in terms of enterprise development.
There is no doubt that DuPont analysis will be introduced to find its feasibility. Under the condition of considering the inner link of financial indicators, DuPont analysis uses the relationship between several major financial ratios to synthetically analyze the financial position of the enterprise. It is a classical method to evaluate the company profitability and shareholders’ equity returns level and evaluate enterprise performance from a financial perspective(Angelico & Nikbakht, 2000). The basic idea of DuPont analysis is to decompose the enterprise net assets yield to the product of a number of financial ratios, thus it can help to make an in-depth analysis of business performance. The most significant feature of DuPont model is to connect several ratios that are used to evaluate corporate efficiency and financial conditions according to their inner links, then form a complete index system, and finally reflect the enterprise by return on equity comprehensively (Angelico & Nikbakht, 2000). This method can make the level of financial ratio analysis more clear, organized and outstanding, to provide the operation and profitability of enterprises for financial statement analysts. DuPont analysis takes related values in place according to their inner links by DuPont chart and the core value is the return on equity. There are three key points that need to be noted when people utilize DuPont analysis (Bartholomew; Steele, et al, 2008): first, sales net interest rate reflects the relationship of net profit and sales income, and it depends on the sales revenue and total cost. Second, total assets can be referred as an important factor influencing asset turnover ratio and return on equity. Third, equity multiplier is influenced by asset-liability ratio index. To sum up, DuPont analysis system can explain the reason and trend of factor changes.