Application of the DuPont Approach for Formulating Managerial Decisions

Abstract

This case introduces a unique approach to financial statement analysis that centers on managerial decision-making using DuPont analysis. Rather than grouping ratios into traditional categories, such as liquidity, asset efficiency, profitability, insolvency, and market ratios, ratios are grouped into operating, investing, and financing decision-making areas. Students can deepen their understanding of a firm’s strengths and weaknesses through a process of “drilling-down” into the three decision-making domains. The analysis begins with an examination of return on investment (ROI) using the DuPont analysis which provides a useful framework for focusing on the three core managerial decision-making activities. The objective of the study is to help Mr Rahul, a consultant at Karvy brokerage house, analyse the financial statement of Biogen Inc. and calculate ratios that are important for managerial decision-making. His ultimate goal is to help his client, Sriram, identify trends that are relevant for projecting future growth and enable him to make managerial decision regarding core operating, investing, and financing activities. The case helps students decide whether to invest or not and give suggestion to sell, buy, or hold stocks of Biogen Inc. The case assists students in understanding and analysing the overall performance of the company to reach the investment decision. Finally, students will gain a thorough understanding of DuPont analysis ratios.