Efficiency Ratios and DuPont Analysis

These flashcards cover key concepts related to efficiency ratios and DuPont analysis, providing definitions and understanding for exam preparation.

DuPont Analysis

A method that breaks down Return on Equity (ROE) into components to show how profit margin, asset turnover, and financial leverage contribute to profitability.

Return on Equity (ROE)

A measure of financial performance calculated by dividing net income by average shareholder equity.

Asset Turnover Ratio

A financial ratio that shows how effectively a company uses its assets to generate sales, calculated as Sales divided by Average Total Assets.

Net Income

The total profit of a company after all expenses, taxes, and costs have been subtracted from total revenue.

Average Total Assets

The average of total assets over a period, calculated as the sum of beginning and ending total assets divided by two.

Financial Leverage

The use of borrowed funds to increase the potential return on investment.

Profit Margin

A measure of profitability calculated as net income divided by revenue, expressing how much of each dollar of revenue is profit.

Efficiency Ratios

Financial metrics used to assess how well a company utilizes its assets and manages its liabilities.

Sales

The total revenue generated from selling goods or services before any expenses are deducted.