# Financial Analysis

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Financial analysis of the XYZ Company using DuPont approach
In today’s dynamic business environment the strongest indicator for a financially success of the company is return on equity, or simply ROE. This is a great tool for investors to measure and summarizes the ability of the management to turn shareholder equity into profitable returns.
Using DuPont approach I can analyze XYZ Company by breaking down return on equity and get much better understanding of the quality of this company. DuPont ratio can be used as a compass in this process by directing towards significant areas of strength and weakness evident in the financial statement.
The DuPont ratio is calculated as follows:-
ROE=(Net Income/Sales)X(Sales/Average Assets)X(Average Assets/Shareholders Equity)
This ratio provide measures in three of the four key areas of the analysis, each representing a compass bearing, pointing the way to the next stage of investigation.
DuPont it measures the return on Equity (ROE) although is not an adequate replacement for detailed financial analysis but it provide an excellent snapshot and starting point.
Three areas that are covered on DuPont are as follows:-
Profitability, operating efficiency and leverage
Profitability ratios measures the rate at which either sales or capital is converted into profit at different level of operation. the Net profit margin is calculated as Net Income/Sales, this is the most common and comprehensive since it uses the bottom line net income in its measures, apart to others like gross and operating profitability, though all are common and describe performance at different activity...

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