1. Core concepts: what analysis is really for
Ratio analysis·Turning absolute numbers into relative ones so firms of different sizes can be compared and questioned.
DuPont analysis·Splitting ROE into net margin times asset turnover times leverage, to locate where returns actually come from.
The test of any analysis is simple: does it point to an operating action? If a number cannot be traced to a decision, it is bookkeeping, not analysis.
2. DuPont and the four ratio families
| Family | Examples | Question answered |
|---|---|---|
| Profitability | Gross margin, net margin, ROE | Does the business make money? |
| Efficiency | Receivable, inventory, asset turnover | How fast does cash move? |
| Solvency | Debt ratio, current ratio | Can it survive a shock? |
| Growth | Revenue and profit growth | Is there a future? |
When ROE falls, the fix differs by cause: weak margin means pricing or cost trouble, weak turnover means working capital trouble, weak leverage means financing trouble.
3. From ratio to action
Benchmark
Compare with your own history, the industry median, and the top quartile.
Drill down
Break margin by product line and region; break turnover by receivable aging.
Ask why three times
From number to business cause to management action.
Verify
Check whether the adjusted metric actually improves, then close the loop.
4. Analysis in the AI era
AI turns monthly reporting into live dashboards with automatic variance alerts and self-generated attribution. Judgment still belongs to the manager.
- Real-time operating boards instead of last month's report.
- Automatic attribution of profit swings by volume, price, region and product.
- Early-warning thresholds on cash and turnover metrics.