DuPont Analysis

At the moment, DuPont holds a strong position in the chemical industry, but the company’s financial performance raises questions concerning its effectiveness. In this respect, the dupont analysis of the company can help to reveal the key financial trends of the company and its marketing performance. DuPont has considerable assets and keeps growing but the company grows through increasing its debt rather than equity. Nevertheless, the in-depth analysis of the company’s financial performance reveals the considerable potential of DuPont and its steady international market expansion that contributes to the further financial improvement of the performance of the company.

DuPont is one of the leaders of the chemical industry that operates worldwide. The company was founded in 1802 and keeps growing at the moment. The long history of the company is the success story which proves the overall effectiveness of the marketing strategy, mission and vision of the company. At the same time, such a long history contributed to the formation of the specific identity of DuPont which comprises an integral part of its brand equity and defines, to a significant extent, the long-term development of the company. The focus on the research and development along with the wide introduction of innovations are distinct features of the corporate identity of DuPont which mirrors the essence of the company and its philosophy. DuPont was always oriented on the introduction of innovations that allowed the company to take the leading position in the market and to enter new industries and markets. In such a way, the company has managed to achieve positive outcomes and leadership in the chemical industry due to its innovations. Moreover, the company has managed to enter new industries and offer its products to other companies operating in diverse industries. In the course of time, the company has expanded its business globally and, today, DuPont is the internationally recognized brand which evokes positive associations in customers and has a positive brand image, while any controversies associated with DuPont have been dismissed due to innovations and fast progress of the company, as was the case of using Freon in refrigerators which was later replaced by more environment friendly product from the company (Benbrahim-Tallaa, et al., 2014). Therefore, innovations and the focus on scientific study, research and development of new products comprise the core of the DuPont’s identity and are the major conditions of the tremendous success of the company for more than two centuries so far. The financial performance of the company is stable, although the company does not gain considerable profits but the expansion of the company and financial stability allow the company to maintain the stable financial performance and position in the global market.

DuPont operates in the chemical and food industry mainly at the moment, but the company supplies its products to companies and customers, who operate in other industries, which vary from the automotive industry to farming. The company operates internationally and keeps expanding its global market share worldwide. The company is based in the US and the US market still remains the major target market, where DuPont holds a particularly strong position. Nevertheless, the diversity of its products and their quality along with the successful marketing strategy of DuPont allowed the company to expand its business internationally and take one of the leading positions in the global market. At the moment, the company is ranked the fourth largest chemical company in the world. The company is closely integrated in many industries and cooperation with other companies operating in diverse industries. This is why DuPont plays an important not only in the chemical or food industry, where the position of the company is particularly strong, but also in the global economy at large.

The global market expansion became possible due to the ability of DuPont offer products that other companies and customers worldwide need and like to purchase. For example, nylon was introduced by DuPont and became the true success almost immediately. The company did not only collaborate with companies operating in different industries, such as apparel one, but also became an important government contractor to supply nylon for the military. Such marketing strategy and the high demand on new products introduced by the company contributed to the international success of DuPont.

On the other hand, some products of the company triggered controversies, among which the most notorious was the case of Freon invented by DuPont and introduced in the market as the main material used in refrigerators. At first, Freon was just another success story for DuPont, but eventually scientists revealed the negative impact of Freon on the environment, including the destructive impact of Freon on the ozone layer of the Earth (Cerveaux, 2013). As a result, DuPont became vulnerable to the severe criticism of environmentalist organizations, average customers and policy makers. In face of the growing public pressure, the company did not give up. Instead, DuPont enhanced research and development and ultimately replaced Freon by a new material which was environment friendly. In such a way, due to innovative activities and extensive research and development DuPont has managed to overcome what seemed to be a profound crisis associated with one of the main products of the company at the time being. The case of Freon crisis has proved the ability of the company to address challenging issues and to overcome problems that threatened to the stability of the company and its position in the global market. The company has managed to take advantage of the crisis and enhanced its image as environment friendly company to renounce the criticism of environmentalists, who claimed that DuPont’s operations had a devastating impact on the natural environment. Even though products and activities of the company often do have the harmful impact on the natural environment, its solution of the Freon crisis contributed to the change of the public opinion concerning DuPont and its impact on the natural environment. The company has got the evidence of its environment friendly technologies and manifested its readiness to introduce environment friendly products.

 The Dupont Identity is calculated as follows: ROE = Net Income/ Average Total Equity = 2,513,000 / 9,998,000 = 0.25.

The major rival of Dupont is Syngenta AG, the company that holds the leading position in the agrochemical industry, where the position of Dupont is particularly strong. The dupont identity for Syngenta AG is as follows: ROE = Net Income/ Average Total Equity = 1,181,000 / 7,950,000 = 0.15.

The dupont identity for the industry average is as follows: ROE = Net Income/ Average Total Equity = 855,000 / 6,051,000 = 0.14.

The operating efficiency of the company, which is measured by profit margin, which indicates to the effectiveness of the financial performance of the company and its operations. The operating efficiency is calculated from the total revenue of the company and revenue that remains after subtracting all operating expenses, taxes, interest and preferred stock dividends. The actual operating efficiency will be as follows 24,594,000 – 7,172,000 = 17,422,000. This means that the operating efficiency of the company is high and the company performs successfully. DuPont performs its operations with the high degree of profitability.

The asset turnover ratio is the asset use efficiency of the company, which is measured by the total asset turnover. This is another important element of the dupont identity of the company. The asset use efficiency measures the efficiency of using assets of the company to generate revenues. This tool helps to measure whether the company uses its assets effectively to generate revenues or not. The asset turnover ratio is measured as the ratio of total revenues to total assets. In case of DuPont, the asset turnover ratio is 24,594,000 / 39,964,000 = 0.62. The asset turnover ratio of the company is therefore relatively low that means that the company is under-performing at the moment because the better the performance of the company is the higher is the asset turnover ratio. In case of DuPont the asset turnover ratio is relatively low. At the same time, to understand the general trend in the performance of the company, it is important to compare the asset turnover ratio of the company within the last three years. In 2016, the asset turnover ratio of the company was 0.62. In 2015, the asset turnover ratio was 25,130,000 / 41,166,000 = 0.61. In 2014, the asset turnover ratio was 28,406,000 / 50,490,000 = 0.56 (See Table 1-3). The dynamics of the change of the asset turnover ratio of DuPont within the last three years is positive that means that the performance of the company tends to improve, although it is apparently not perfect at the moment because the asset turnover ratio is still low that means that the company has poor performance, but such poor performance may be also the result of the expansion and aggressive marketing strategy of the company which requires substantial financial resources and restructuring of the company and its parts.

The financial leverage of the company, which is measured by the equity multiplier, reveals the actual financial position of the company and helps to determine the dupont identity of the company more accurately. The financial leverage of the company involves the comparison of the total assets of the company to its total stockholder’s equity. The total assets of DuPont comprise 39.964.000, while the total stockholder’s equity of the company is 9.998.000. In such a way, the equity multiplier of the company is quite high and comprises 39.964.000 / 9.998.000 = 4. The financial leverage of the company is, therefore, high that means that the company tends to finances the purchase of assets through debt rather than equity. In this regard, the high total liabilities of the company are another indicator of the preference of the company to purchase assets through debt rather than equity. The company increases its liabilities because it increases its debt which the company uses to purchase new assets and to meet its financial needs, including funding of its operations. The total liabilities of the company comprise 29,966,000. Total liabilities of the company are consistently higher than the stockholder’s equity of the company. Therefore, DuPont purchases new assets through debt that increases its liabilities. Nevertheless, the company expects to maintain its growth through the ongoing growth of its revenues and income obtained from new assets and operations the company performs in the global market.

The company’s marketing strategy is the broad differentiation since the company operates in different segments and takes different niches in the chemical and food industry as well as cooperates with many other industries, such as automotive, space, apparel and other industries. The diversity of products allows DuPont to collaborate with companies operating in different fields and be one of the largest government contractors in the US as well as other countries of the world. Such broad differentiation is one of the major factors of DuPont’s success in the global market. The diversity of products helps DuPont to keep growing and expanding its business because the end of the life cycle of some products is compensated by the rise of new products that take the lead in the market and bring the company considerable revenues and returns on investments. The diversification also facilitates the expansion of the company’s business because diverse products allow the company to develop business ties with other companies operating in different industries and in different countries. DuPont collaborates with many multinational corporations which operate worldwide. As they collaborate with DuPont and buy products from the company, they also open the way for DuPont to new markets, where those multinational corporations operate.

At the same time, in spite of the fourths position among the largest chemical companies, DuPont is still ranked eighth based on the revenue of the company. This means that DuPont has the potential to improve its financial performance as its capitalization and scope of operations do not fully match the level of revenues the company obtains. Certain gap between revenues of the company and its actual position in the global market reveals the margin for the growth of the company. In other words, the company has the potential which can increase revenues of the company and to make its marketing performance more balanced. At the same time, the current gap between the actual position of the company in the global market and its revenues is also the result of the accelerated growth of the company in the late 20th – early 21st century (Kinnane, 2002). To put it more precisely, the company invested heavily into its business development that required substantial financial resources. The fast growth required restructuring that also needed costs and could not bring high revenues in a day. The company continues such strategy now that explains the gap between its position in the global market and its revenues.

In this regard, it is possible to recommend the implementation of merger and acquisition strategy which may help DuPont to enhance its competitive position and to improve its financial position due to fast international market expansion and substantial rise of the market share of the company in the world. DuPont has already implemented the strategy of mergers and acquisitions and the most prospective merger project DuPont is involved in is the possible merger of DuPont and Dow Chemical Company. The merger has not been completed so far but the deal opens great prospects for the company to become the leader of the global chemical industry.

However, the strategy of mergers and acquisitions raises the problem of government regulations and anti-trust policies that can intervene into plans of DuPont. For example, the merger of DuPont and Dow stumbles because of anti-trust policies and the need to create three public companies working in different segments, if the merger of the two companies succeeds. Such prospect is questionable in terms of future prospects of growth of the new company (Olsen, 2007). This is why DuPont should implement its strategy of mergers and acquisitions while keeping in mind anti-trust polices and government regulations.

DuPont is the company with a long history and numerous success stories which contributed to the leadership of the company in the global market now.  The success of DuPont shaped its identity as the innovative company that invests into the research and development and holds the leading position in the market. The focus on innovations and the diversity of its products became the major conditions of the success of DuPont. The company collaborates with many other companies operating in many industries. DuPont focuses on the chemical and food industry now, but its products may be found in other industries as well. Moreover, DuPont is one of the major government contractors and government contracts make the further business development of the company stable and predictable.

Thus, DuPont holds a stable position in the market but its financial position is quite challenging because the growth of the company is slow, while some indicators are quite disturbing, like low asset turnover ratio. Nevertheless, the company continues its growth and expands its market. This marketing strategy requires substantial financial resources. In this regard, the disturbing trend is the growth of liabilities of the company, but the growth of assets and growing market share of the company create conditions for the positive financial performance of the company in the future.

References:

Benbrahim-Tallaa, L, et al. (2014). Carcinogenicity of perfluorooctanoic acid, tetrafluoroethylene, dichloromethane, 1,2-dichloropropane, and 1,3-propane sultone, Lancet Oncol. 15 (9): 924–5.

Cerveaux, A. (2013) Taming the Microworld: DuPont and the Interwar Rise of Fundamental Industrial Research, Technology and Culture, 54 (April 2013), 262–88.

DuPont Balance Sheet. (2017). Yahoo! Finance. Retrieved from https://finance.yahoo.com/quote/DD/balance-sheet?p=DD

DuPont Cash Flow. (2017). Yahoo! Finance. Retrieved from https://finance.yahoo.com/quote/DD/cash-flow?p=DD

DuPont Income Statement. (2017). Yahoo! Finance. Retrieved from https://finance.yahoo.com/quote/DD/financials?p=DD

Kinnane, A. (2002). DuPont: From the Banks of the Brandywine to Miracles of Science. Wilmington: E.I. du Pont de Nemours and Company. 

Olsen, G., et al. (2007). Half-Life of Serum Elimination of Perfluorooctanesulfonate, Perfluorohexanesulfonate, and Perfluorooctanoate in Retired Fluorochemical Production Workers, Environ Health Perspect. 115 (9), 1298–305.

Ndiaye, P. A. (2007). Nylon and Bombs: DuPont and the March of Modern America. New York: Random House.

Appendices:

Table 1 Balance Sheet

Period Ending 12/31/2016 12/31/2015 12/31/2014
Current Assets
Cash And Cash Equivalents 4,605,000 5,300,000 6,910,000
Short Term Investments 1,362,000 906,000 124,000
Net Receivables 4,971,000 4,643,000 5,770,000
Inventory 5,673,000 6,140,000 6,787,000
Other Current Assets 506,000 398,000 6,491,000
Total Current Assets 17,117,000 17,387,000 26,082,000
Long Term Investments 649,000 688,000 762,000
Property Plant and Equipment 9,231,000 9,784,000 10,008,000
Goodwill 4,180,000 4,248,000 4,332,000
Intangible Assets 3,664,000 4,144,000 4,569,000
Accumulated Amortization
Other Assets 1,815,000 1,116,000 1,003,000
Deferred Long Term Asset Charges 3,308,000 3,799,000 3,734,000
Total Assets 39,964,000 41,166,000 50,490,000
Current Liabilities
Accounts Payable 8,468,000 9,151,000 9,916,000
Short/Current Long Term Debt 429,000 1,165,000 1,422,000
Other Current Liabilities 2,467,000
Total Current Liabilities 8,897,000 10,316,000 13,805,000
Long Term Debt 8,107,000 7,642,000 9,233,000
Other Liabilities 12,333,000 12,591,000 13,615,000
Deferred Long Term Liability Charges 431,000 417,000 459,000
Minority Interest 198,000 207,000 58,000
Negative Goodwill
Total Liabilities 29,966,000 31,173,000 37,170,000
Stockholders’ Equity
Misc. Stocks Options Warrants
Redeemable Preferred Stock
Preferred Stock
Common Stock 285,000 288,000 298,000
Retained Earnings 14,924,000 14,510,000 16,894,000
Treasury Stock -6,727,000 -6,727,000 -6,727,000
Capital Surplus 11,190,000 11,081,000 11,174,000
Other Stockholder Equity -9,911,000 -9,396,000 -8,556,000
Total Stockholder Equity 9,998,000 9,993,000 13,320,000
Net Tangible Assets 2,154,000 1,601,000 4,419,00

Sources: DuPont Balance Sheet. (2017). Yahoo! Finance. Retrieved from https://finance.yahoo.com/quote/DD/balance-sheet?p=DD

Table 2 Income statement

Revenue 12/31/2016 12/31/2015 12/31/2014
Total Revenue 24,594,000 25,130,000 28,406,000
Cost of Revenue 14,469,000 15,112,000 17,023,000
Gross Profit 10,125,000 10,018,000 11,383,000
Operating Expenses
Research Development 1,641,000 1,898,000 1,958,000
Selling General and Administrative 5,005,000 5,074,000 5,536,000
Non Recurring
Others
Total Operating Expenses
Operating Income or Loss 3,479,000 3,046,000 3,889,000
Income from Continuing Operations
Total Other Income/Expenses Net 156,000 -113,000 801,000
Earnings Before Interest and Taxes 3,635,000 2,933,000 4,690,000
Interest Expense 370,000 342,000 377,000
Income Before Tax 3,265,000 2,591,000 4,313,000
Income Tax Expense 744,000 696,000 1,168,000
Minority Interest 198,000 207,000 58,000
Net Income From Continuing Ops 2,521,000 1,895,000 3,145,000
Non-recurring Events
Discontinued Operations 4,000 64,000 491,000
Extraordinary Items
Effect Of Accounting Changes
Other Items
Net Income
Net Income 2,513,000 1,953,000 3,625,000
Preferred Stock And Other Adjustments
Net Income Applicable To Common Shares 2,513,000 1,953,000 3,625,000

Source: DuPont Income Statement. (2017). Yahoo! Finance. Retrieved from https://finance.yahoo.com/quote/DD/financials?p=DD

Table 3. Cash Flow

Period Ending 12/31/2016 12/31/2015 12/31/2014
Net Income 2,513,000 1,953,000 3,625,000
Operating Activities, Cash Flows Provided By or Used In
Depreciation 1,258,000 1,466,000 1,617,000
Adjustments To Net Income 649,000 477,000 -265,000
Changes In Accounts Receivables -270,000 -448,000 -88,000
Changes In Liabilities -808,000 -1,302,000 -870,000
Changes In Inventories -54,000 164,000 -318,000
Changes In Other Operating Activities
Total Cash Flow From Operating Activities 3,300,000 2,316,000 3,712,000
Investing Activities, Cash Flows Provided By or Used In
Capital Expenditures -1,019,000 -1,629,000 -2,020,000
Investments -837,000 -161,000 444,000
Other Cash flows from Investing Activities 342,000 -38,000 1,239,000
Total Cash Flows From Investing Activities -1,514,000 -1,828,000 -337,000
Financing Activities, Cash Flows Provided By or Used In
Dividends Paid -1,335,000 -1,546,000 -1,696,000
Sale Purchase of Stock -735,000 -2,079,000 -1,673,000
Net Borrowings -240,000 2,141,000 -1,701,000
Other Cash Flows from Financing Activities -18,000 -339,000 -4,000
Total Cash Flows From Financing Activities -2,328,000 -1,823,000 -5,074,000
Effect Of Exchange Rate Changes -153,000 -275,000 -332,000
Change In Cash and Cash Equivalents -695,000 -1,610,000 -2,031,000

Source: DuPont Cash Flow. (2017). Yahoo! Finance. Retrieved from https://finance.yahoo.com/quote/DD/cash-flow?p=DD

The terms offer and acceptance. (2016, May 17). Retrieved from

[Accessed: October 27, 2021]

"The terms offer and acceptance." freeessays.club, 17 May 2016.

[Accessed: October 27, 2021]

freeessays.club (2016) The terms offer and acceptance [Online].
Available at:

[Accessed: October 27, 2021]

"The terms offer and acceptance." freeessays.club, 17 May 2016

[Accessed: October 27, 2021]

"The terms offer and acceptance." freeessays.club, 17 May 2016

[Accessed: October 27, 2021]

"The terms offer and acceptance." freeessays.club, 17 May 2016

[Accessed: October 27, 2021]

"The terms offer and acceptance." freeessays.club, 17 May 2016

[Accessed: October 27, 2021]
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