Research On Du Pont System Based On Cost Behavior And Its Application

Du Pont System is an important tool of comprehensive financial analysis. TakingReturn on Equity ratio (ROE) as its core index, Du Pont System organically combinesvarious indexes such as profitability, management, pay ability, and anti-risk-ability.Making use of ratio analysis, comparison analysis and fact analysis, it can deeply andbroadly evaluate one enterprise's operation performance and the facts which caninfluence it. In an ever-changing economic environment, traditional Du Pont Systembegins to show many flaws and disadvantages especially in strengthening internalmanagement. In light of this reason, this paper systematically constructs a new DuPont System based on cost behavior and proves it with empirical analysis.After deeply analyzing the flaws of traditional Du Pont System, this paperindicates the importance to establish a new Du Pont System based on cost behavior.Theoretically, it argues that ROE has relationship with various elements and theimproved system has the feasibility to be implemented in China. In terms of costbehavior analysis which is the prerequisite of the new system, the paper utilizes theprinciple of least absolute deviation to build a model which can be transformed into alinear programming model to decompose the mixed costs of listed companiessuccessfully. Then, this study analyzes new system's application using factor analysisand regression analysis, with the sample data in reports of retail industry listedcompanies. The result demonstrates that the new Du Pont System improves thetraditional one dramatically. It is proved to be a brand-new comprehensive financialevaluation system.