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Du-Pont Control Chart

>> December 21, 2011

In ratio analysis, Du-Pont Control Chart shows the relationship of net profit margin ratio and total investment turnover ratio for calculating return on total investment ratio (ROI). If company wants to increase return on investment (ROI), it has to concentrate to increase net profit margin and total investment turnover ratio.

Following is its screenshoot :

Du-Pont Chart
We measure any organisation's performance on the basis of its return on investment. But it is affected from lots of factors.

(A) If return on investment rate is good, it is due to effective use of our total investment. Our total investment may be in fixed assets and in current assets. We invest this money through our long term capital and working capital. If we use both resources best way, our total sales will increase and then our total net profit will increase. This will increase our return on investment.

(B) If we have learned the techniques to control our expenses and promoted our sales with innovative methods, at that time this sales will increase our net profit and total investment. Our total worth will increase, if sales will increase.

We should calculate all three ratios. We should analyze our company's performance on the basis of Du-Pont Control Chart. In this control, we have to control our total expenses and total book value of our all assets. We we will control these two things, its direct effect will be on our ROI. It will grow. 

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