Overcoming the Uncertainty in the Du-Pont Graph of Profitability

Abstract

Financial analysis of a company requires a wealth of information. There is so much information available and so much of the analysis can be computerized, that the task of the analyst is to select the appropriate tools, gather the pertinent information, and interpret the information. Analysis is becoming more important following the recent scandals as investors and financial managers are learning to become more sceptical of accounting information and look more closely at trends in data, comparisons with other firms, the relation between management compensation and earnings, and footnote disclosures. One of the best tools for predicting profit from financial analysis is the use of Du-Pont graph of profitability. It sees a connection between profit and turnover of operating assets. Each company has, however, individual curve of this dependence, therefore, the determination of turnover for the planned profit vague matter (values create the array of values). The aim of this paper is to propose a method to resolve uncertainty in planning for asset turnover target profit. Will be used polynomial interpolation theory and posterior information.

Keywords

• Du-Pont Graph of profitability
• asset turnover
• polynomial interpolation
• posterior information