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Du Pont system

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Definition of Du Pont system

Du Pont System Image 1

Du Pont system

A breakdown of ROE and ROA into component ratios.

Related Terms:

Dupont system of financial control

Highlights the fact that return on assets (ROA) can be expressed in terms
of the profit margin and asset turnover.

Accelerated cost recovery system (ACRS)

Schedule of depreciation rates allowed for tax purposes.

Accounting system

A set of accounts that summarize the transactions of a business that have been recorded on source documents.

actual cost system

a valuation method that uses actual direct
material, direct labor, and overhead charges in determining
the cost of Work in Process Inventory

Aggregate Production Function

An equation determining aggregate output as a function of aggregate inputs such as labor and capital.

Aging schedule

A table of accounts receivable broken down into age categories (such as 0-30 days, 30-60
days, and 60-90 days), which is used to see whether customer payments are keeping close to schedule.

aging schedule

Classification of accounts receivable by time outstanding.

Du Pont System Image 2

Amortization Schedule

A schedule that shows precisely how a loan will be repaid. The schedule gives the required payment on each specific date and shows how much of it constitutes interest and how much constitutes repayments of principal.

Annuity due

An annuity with n payments, wherein the first payment is made at time t = 0 and the last
payment is made at time t = n - 1.

Annuity Due

Annuity where the payments are to be made at the beginning of
each period

annuity due

a series of equal cash flows being received or paid at the beginning of a period

annuity due

Level stream of cash flows starting immediately.

Automated storage/retrieval system

A racking system using automated systems
to load and unload the racks.

business intelligence (BI) system

a formal process for gathering and analyzing information and producing intelligence to meet decision making needs; requires information about
internal processes as well as knowledge, technologies, and competitors


an incidental output of a joint process; it is salable,
but the sales value of by-products is not substantial enough
for management to justify undertaking the joint process; it
is viewed as having a higher sales value than scrap


A product that is an ancillary part of the primary production process, having
a minor resale value in comparison to the value of the primary product being
manufactured. Any proceeds from the sale of a by-product are typically offset
against the cost of the primary product, or recorded as miscellaneous revenue.

Du Pont System Image 3


A material created incidental to a production process, which can be
sold for value.

charge-back system

a system using transfer prices; see transfer

Clearing House Automated Payments System (CHAPS)

A computerized clearing system for sterling funds
that began operations in 1984. It includes 14 member banks, nearly 450 participating banks, and is one of the
clearing companies within the structure of the Association for Payment Clearing Services (APACS).

Clearing House Interbank Payments System (CHIPS)

An international wire transfer system for high-value
payments operated by a group of major banks.

Comprehensive due diligence investigation

The investigation of a firm's business in conjunction with a
securities offering to determine whether the firm's business and financial situation and its prospects are
adequately disclosed in the prospectus for the offering.

cost control system

a logical structure of formal and/or informal
activities designed to analyze and evaluate how well
expenditures are managed during a period

cost management system (CMS)

a set of formal methods
developed for planning and controlling an organization’s
cost-generating activities relative to its goals and objectives
cost object anything to which costs attach or are related

cost of production report

a process costing document that
details all operating and cost information, shows the computation
of cost per equivalent unit, and indicates cost assignment
to goods produced during the period

cost reduction

the practice of lowering current costs, especially
those that may be in excess of what is necessary

Coverdell Education IRA

A form of individual retirement account whose earnings
during the period when funds are stored in the IRA will be tax free at the
time when they are used to pay for the cost of advanced education.


A flat amount that an insured must pay before the insurance company makes any benefit payments under a health insurance policy.

Deductive reasoning

The use of general fact to provide accurate information about a specific situation.

Dollar duration

The product of modified duration and the initial price.

Dow Jones industrial average

This is the best known U.S.index of stocks. It contains 30 stocks that trade on
the New York Stock Exchange. The Dow, as it is called, is a barometer of how shares of the largest
U.S.companies are performing. There are thousands of investment indexes around the world for stocks,
bonds, currencies and commodities.

Dow Jones Industrial Average

Index of the investment performance of a portfolio of 30 “blue-chip” stocks.

Du Pont

model a model that indicates the return on investment
as it is affected by profit margin and asset turnover

Dual-currency issues

Eurobonds that pay coupon interest in one currency but pay the principal in a different

dual pricing arrangement

a transfer pricing system that allows
a selling division to record the transfer of goods or
services at one price (e.g., a market or negotiated market
price) and a buying division to record the transfer at another
price (e.g., a cost-based amount)

Dual syndicate equity offering

An international equity placement where the offering is split into two
tranches - domestic and foreign - and each tranche is handled by a separate lead manager.

Due bill

An instrument evidencing the obligation of a seller to deliver securities sold to the buyer.
Occasionally used in the bill market.

Due Diligence

The process of systematically evaluating information, to identify risks and issues relating to a proposed transaction.(i.e. verify that information is what it is proposed to be).


selling products abroad at lower prices than those
charged in the home country or in other national markets


A common gauge of the price sensitivity of an asset or portfolio to a change in interest rates.


The weighted average of the time until maturity of each of the
expected cash flows of a debt security


The expected life of a fixed-income security considering its coupon
yield, interest payments, maturity, and call features. As market interest rates
rise, the duration of a financial instrument decreases. See Macaulay duration.


The time it takes for a policy or annuity to reach maturity.

Dutch auction

Auction in which the lowest price necessary to sell the entire offering becomes the price at
which all securities offered are sold. This technique has been used in Treasury auctions.

economic production run (EPR)

an estimate of the number
of units to produce at one time that minimizes the total
costs of setting up production runs and carrying inventory

Educational Assistance Plan

A plan that an employer creates on behalf of its
employees covering a variety of educational expenses incurred on behalf of
employees, for which they can avoid recognizing some income.

Effective duration

The duration calculated using the approximate duration formula for a bond with an
embedded option, reflecting the expected change in the cash flow caused by the option. Measures the
responsiveness of a bond's price taking into account the expected cash flows will change as interest rates
change due to the embedded option.

Electronic Federal Tax Payment Systems (EFTPS)

An electronic funds transfer system used by businesses to remit taxes to the government.

enterprise resource planning (ERP) system

a packaged software program that allows a company to
(1) automate and integrate the majority of its business processes,
(2) share common data and practices across the entire enterprise, and
(3) produce and access information in a realtime environment

Enterprise resource planning system

A computer system used to manage all company
resources in the receipt, completion, and delivery of customer orders.

equivalent units of production (EUP)

an approximation of the number of whole units of output that could have been
produced during a period from the actual effort expended
during that period; used in process costing systems to assign
costs to production

European Monetary System (EMS)

An exchange arrangement formed in 1979 that involves the currencies
of European Union member countries.

Factor of Production

A resource used to produce a good or service. The main macroeconomic factors of production are capital and labor.

Federal Reserve System

The central bank of the U.S., established in 1913, and governed by the Federal
Reserve Board located in Washington, D.C. The system includes 12 Federal Reserve Banks and is authorized
to regulate monetary policy in the U.S. as well as to supervise Federal Reserve member banks, bank holding
companies, international operations of U.S.banks, and U.S.operations of foreign banks.

Federal Reserve System

The central banking authority responsible for monetary policy in the United States.

flexible manufacturing system (FMS)

a production system in which a single factory manufactures numerous variations
of products through the use of computer-controlled
focused factory arrangement
an arrangement in which a
vendor (which may be an external party or an internal corporate
division) agrees to provide a limited number of
products according to specifications or to perform a limited
number of unique services to a company that is typically
operating on a just-in-time system

Fraudulent Financial Reporting

Intentional misstatements or omissions of amounts or disclosures
in financial statements done to deceive financial statement users. The term is used interchangeably
with accounting irregularities. A technical difference exists in that with fraud, it
must be shown that a reader of financial statements that contain intentional and material misstatements
must have used those financial statements to his or her detriment. In this book, accounting
practices are not alleged to be fraudulent until done so by an administrative, civil, or
criminal proceeding, such as that of the Securities and Exchange Commission, or a court.

Good delivery and settlement procedures

Refers to PSA Uniform Practices such as cutoff times on delivery
of securities and notification, allocation, and proper endorsement.

grade (of product or service)

the addition or removal of product
or service characteristics to satisfy additional needs, especially price


A policy of decreasing the rate of growth of the money supply gradually over an extended period of time, so that inflation can adjust with smaller unemployment cost. Contrast with cold-turkey policy.

Graduated-payment mortgages (GPMs)

A type of stepped-payment loan in which the borrower's payments
are initially lower than those on a comparable level-rate mortgage. The payments are gradually increased over
a predetermined period (usually 3,5, or 7 years) and then are fixed at a level-pay schedule which will be
higher than the level-pay amortization of a level-pay mortgage originated at the same time. The difference
between what the borrower actually pays and the amount required to fully amortize the mortgage is added to
the unpaid principal balance.

Gross Domestic Product

Total output of final goods and services produced within a country during a year.

Gross domestic product (GDP)

The market value of goods and services produced over time including the
income of foreign corporations and foreign residents working in the U.S., but excluding the income of U.S.
residents and corporations overseas.

Gross National Product

Total output of final goods and services produced by a country's citizens during a year.

Gross national product (GNP)

Measures and economy's total income. It is equal to GDP plus the income
abroad accruing to domestic residents minus income generated in domestic market accruing to non-residents.

hybrid costing system

a costing system combining characteristics
of both job order and process costing systems

Imputation tax system

Arrangement by which investors who receive a dividend also receive a tax credit for
corporate taxes that the firm has paid.

Individual Insurance

Insurance that is offered to individuals rather than groups.

Individual Retirement Account

A personal savings account into which a defined
maximum amount may be contributed, and for which any resulting interest
is tax deferred.

Individual Retirement Annuity

An IRA comprised of an annuity that is managed
through and paid out by a life insurance company.

Inductive reasoning

The attempt to use information about a specific situation to draw a conclusion.

Industrial revenue bond (IRB)

Bond issued by local government agencies on behalf of corporations.


The category describing a company's primary business activity. This category is usually determined
by the largest portion of revenue.

Institutionally Induced Unemployment

Unemployment due to institutional phenomena such as the degree of labor force unionization, the level of discrimination, and government policies such as unemployment insurance programs, minimum wages, or regulations on business.

Interac system

Canada's bank machine and electronic debit system. If you use your bank card at a bank machine which displays the Interac symbol (and that bank machine is not your bank's machine), you will be charged a fee.

Investment product line (IPML)

The line of required returns for investment projects as a function of beta
(nondiversifiable risk).

job order costing system

a system of product costing used
by an entity that provides limited quantities of products or
services unique to a customer’s needs; focus of recordkeeping
is on individual jobs

Joint product

A product that has the highest sales value from among a group of products
that are the result of a joint production process.

Just-in-time inventory systems

systems that schedule materials/inventory to arrive exactly as they are
needed in the production process.

just-in-time manufacturing system

a production system that attempts to acquire components and produce inventory only as needed, to minimize product defects, and to
reduce lead/setup times for acquisition and production

Lean production

The technique of stripping all non-value-added activities from
the production process, thereby using the minimum possible amount of resources
to accomplish manufacturing goals.

Loan amortization schedule

The schedule for repaying the interest and principal on a loan.

lock-box system

system whereby customers send payments to a post office box and a local bank collects and processes checks.

Macaulay duration

The weighted-average term to maturity of the cash flows from the bond, where the
weights are the present value of the cash flow divided by the price.

Macaulay duration

A widely used measure of price sensitivity to yield
changes developed by Frederick Macaulay in 1938. It is measured in years and
is a weighted average-time-to-maturity of an instrument. The Macaulay
duration of an income stream, such as a coupon bond, measures how long, on
average, the owner waits before receiving a payment. It is the weighted
average of the times payments are made, with the weights at time T equal to
the present value of the money received at time T.

MACRS (Modified Accelerated Cost Recovery System)

A depreciation method created by the IRS under the Tax Reform Act of 1986. Companies must use it to depreciate all plant and equipment assets installed after December 31, 1986 (for tax purposes).

management control system (MCS)

an information system that helps managers gather information about actual organizational occurrences, make comparisons against plans,
effect changes when they are necessary, and communicate
among appropriate parties; it should serve to guide organizations
in designing and implementing strategies so that
organizational goals and objectives are achieved

management information system (MIS)

a structure of interrelated elements that collects, organizes, and communicates
data to managers so they may plan, control, evaluate
performance, and make decisions; the emphasis of the
MIS is on internal demands for information rather than external
demands; some or all of the MIS may be computerized
for ease of access to information, reliability of input
and processing, and ability to simulate outcomes of
alternative situations

Mandatory redemption schedule

Schedule according to which sinking fund payments must be made.

Modified Accelerated Cost Recovery System (MACRS)

Depreciation method that allows higher tax deductions in early years and lower deductions later.

Modified duration

The ratio of Macaulay duration to (1 + y), where y = the bond yield. Modified duration is
inversely related to the approximate percentage change in price for a given change in yield.

Modified duration

The Macaulay duration discounted by the per-period
interest rate; i.e., divided by (1+rate/frequency).

Modular bill of material

A bill of material format in which components and subassemblies
are clustered by product option, so one can more easily plan for the
assembly of finished goods with different configurations.

Mortgage duration

A modification of standard duration to account for the impact on duration of MBSs of
changes in prepayment speed resulting from changes in interest rates. Two factors are employed: one that
reflects the impact of changes in prepayment speed or price.

Multirule system

A technical trading strategy that combines mechanical rules, such as the CRISMA
(cumulative volume, relative strength, moving average) Trading system of Pruitt and White.

National Income and Product Accounts

The national accounting system that records economic activity such as GDP and related measures.

Negative duration

A situation in which the price of the MBS moves in the same direction as interest rates.

Net Domestic Product

GDP minus depreciation.

Net National Product

GNP minus depreciation.

Non-production overhead

A general term referring to period costs, such as selling, administration and financial expenses.







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