The Application of DuPont Analysis Method in Financial Analysis of Anhui Heli Company Limited
Hexia Liu
Abstract: The DuPont analysis method proposed by Pierre Dupont and Donaldson Brown is a classic methodfor evaluating corporate performancefrom afinancialperspective. In recentyears, in theface ofthe influence offactors such as international tradeprotectionism, the growth trend ofsales in the machinery industry has slowed. In order to explore the financial situation and development prospects of Anhui Heli Co., Ltd., this article, by applying the DuPont analysis method to the financial analysis ofAnhui Heli Co., Ltd., selectsthe financial data ofthe company listedfor nearly ten years examines the overall changes ofthe enterprises return on net assets, andfurther analyzes the mainfactors and the degree ofimpact ofthe changes ofthe return on net assets through the serial substitution method, and makes suggestions to promote the sustainable development ofAnhui Heli Co., Ltd.
Keywords: DuPont analysis method, Serial replacement method, Anhui Heli Co., Ltd., Return on net assets.
1. Introduction
On November 20-22, 2019, the 'Xingye Cup' Cast Iron Technology Forum and the 2019 National Annual Cast Iron Annual Conference jointly organized by the Casting Working Committee of China Foundry Association and Hefei Casting and Forging Plant of Anhui Heli Co., Ltd. were held in Hefei, Anhui Province[1].
Anhui Heli Co., Ltd. is a company devoted to the research and development of forklift trucks and related supporting parts and other products. It has been casting for more than 40 years. On October 9, 1996, the company was listed on the Shanghai Stock Exchange and its stocks Code '600761', referred to as 'Anhui Heli'. The companys business scope includes not only the research and development, production and sales of industrial vehicles and their key parts, but also after-market services such as vehicle leasing, parts services and remanufacturing. As a logistics system, the key elements in the industrial vehicle series are widely used in the transportation industry, intelligent logistics, and storage centers.
In recent years, in the face of the prevalence of international trade protectionism, the sales volume of the machinery industry has begun to show a trend of slowing down. This article will analyze the financial indicators of Anhui Heli Co., Ltd. through the DuPont analysis method and the serial replacement method, and makes recommendations for its future development.
2. Related Method Concepts and Literature Reviews
2.1 Introduction of DuPont Analysis Method
DuPont Analysis combines several indicators that reflect the financial status and operating efficiency of an enterprise according to certain connections to form a complete set of indicator evaluation system, which is finally reflected through the return on net assets. It was first used by DuPont company in the United States, so it is called the DuPont analysis method.
Figure 1: DuPont analysis chart
The DuPont analysis method is to decompose the companys return on net assets into multiple financial indicators, as shown in Figure 1, which helps financial information users to see the influencing factors of the return on net assets more clearly, and the correlation between sales net interest rate, total asset turnover rate and equity multiplier, so as to better investigate the companys financial status and operating efficiency.
The core indicator of the DuPont analysis method is the return on net assets, which is mainly used to reflect the profitability of net assets. Through decomposition, you can further obtain two indicators of total asset net interest rate and equity multiplier . The net interest rate of total assets is the most important index affecting the return on net assets, which comprehensively reflects the sales results and asset operation of the enterprise. The net interest rate of total assets is the product of the net interest rate of sales and the turnover rate of total assets. The net profit margin of sales reflects the profitability of the company, which is equal to the net profit divided by the sales revenue, representing the level of income from sales revenue. Total asset turnover rate is a financial indicator that reflects the turnover rate of total assets. The faster the asset turnover rate, the stronger the companys operating ability, reflecting the companys comprehensive ability to achieve sales revenue.
The equity multiplier is a measure of a companys solvency and reflects the degree to which an enterprise uses financial leverage to carry out its business activities. The greater the equity multiplier, the higher the debt level of the enterprise and the more leveraged income it will receive, but the accompanying risks will also be higher, and vice versa.
The relationship between the above financial indicators is expressed by the formula:
Return on net assets=total asset net interest ratetimes;equity multiplier=net interest rate of salestimes;total asset turnoverratetimes;equity multiplier
Among them:
Net profit margin of total assets=net profit / total assets = (net profit / sales revenue) times; (sales revenue / total assets)=net interest rate of sales times; total asset turnover.
Equity multiplier=total assets / total shareholders equity.
2.2 Serial Replacement Method
The serial replacement method means that in the factor combination of the analyzed indicators, according to the mutual relationship and nature of each factor, the base period numbers of each factor are sequentially replaced with the numbers of the reporting period, and then the results after each replacement compared with the results before substitution, in order to anal
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