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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.


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.


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.


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.


Du Pont System Image 2

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.


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.


Dual-currency issues

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


Due bill

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


Duration

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


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.


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.


Du Pont System Image 3

European Monetary System (EMS)

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


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.



Good delivery and settlement procedures

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


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 (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 (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.


Imputation tax system

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


Inductive reasoning

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


Industry

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


Industrial revenue bond (IRB)

Bond issued by local government agencies on behalf of corporations.


Investment product line (IPML)

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


Just-in-time inventory systems

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



Loan amortization schedule

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


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.


Mandatory redemption schedule

Schedule according to which sinking fund payments must be made.


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.


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.


Negative duration

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


Non-reproducible assets

A tangible asset with unique physical properties, like a parcel of land, a mine, or a
work of art.


Nonsystematic risk

Nonmarket or firm-specific risk factors that can be eliminated by diversification. Also
called unique risk or diversifiable risk. systematic risk refers to risk factors common to the entire economy.


Offering memorandum

A document that outlines the terms of securities to be offered in a private placement.


Product cycle

The time it takes to bring new and/or improved products to market.


Product risk

A type of mortgage-pipeline risk that occurs when a lender has an unusual loan in production or
inventory but does not have a sale commitment at a prearranged price.


Production payment financing

A method of nonrecourse asset-based financing in which a specified
percentage of revenue realized from the sale of the project's output is used to pay debt service.


Production-flow commitment

An agreement by the loan purchaser to allow the monthly loan quota to be
delivered in batches.


Progressive tax system

A tax system wherein the average tax rate increases for some increases in income but
never decreases with an increase in income.


Regulatory accounting procedures

Accounting principals required by the FHLB that allow S&Ls to elect
annually to defer gains and losses on the sale of assets and amortize these deferrals over the average life of the
asset sold.


REMIC (real estate mortgage investment conduit)

A pass-through tax entity that can hold mortgages
secured by any type of real property and issue multiple classes of ownership interests to investors in the form
of pass-through certificates, bonds, or other legal forms. A financing vehicle created under the Tax Reform
Act of 1986.


Reproducible assets

A tangible asset with physical properties that can be reproduced, such as a building or
machinery.


Residuals

1) Parts of stock returns not explained by the explanatory variable (the market-index return). They
measure the impact of firm-specific events during a particular period.
2) Remainder cash flows generated by pool collateral and those needed to fund bonds supported by the collateral.


Residual assets

Assets that remain after sufficient assets are dedicated to meet all senior debtholder's claims in full.


Residual claim

Related: equity claim


Residual dividend approach

An approach that suggests that a firm pay dividends if and only if acceptable
investment opportunities for those funds are currently unavailable.


Residual losses

Lost wealth of the shareholders due to divergent behavior of the managers.


Residual method

A method of allocating the purchase price for the acquisition of another firm among the
acquired assets.


Residual risk

Related: unsystematic risk


Residual value

Usually refers to the value of a lessor's property at the time the lease expires.


Retail investors, individual investors

Small investors who commit capital for their personal account.


Scheduled cash flows

The mortgage principal and interest payments due to be paid under the terms of the
mortgage not including possible prepayments.


Split-rate tax system

A tax system that taxes retained earnings at a higher rate than earnings that are
distributed as dividends.


Systematic

Common to all businesses.


Systematic risk

Also called undiversifiable risk or market risk, the minimum level of risk that can be
obtained for a portfolio by means of diversification across a large number of randomly chosen assets. Related:
unsystematic risk.


Systematic risk principle

Only the systematic portion of risk matters in large, well-diversified portfolios.
The, expected returns must be related only to systematic risks.


Two-tier tax system

A method of taxation in which the income going to shareholders is taxed twice.


Unsystematic risk

Also called the diversifiable risk or residual risk. The risk that is unique to a company
such as a strike, the outcome of unfavorable litigation, or a natural catastrophe that can be eliminated through diversification.
Related: systematic risk


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).


UNITS OF PRODUCTION

A depreciation method that relates a machine’s depreciation to the number of units it makes each
accounting period. The method requires that someone record the machine’s output each year.


Accounting system

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


Non-production overhead

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


Planning, programming and budgeting system (PPBS)

A method of budgeting in which budgets are allocated to projects or programmes rather than to responsibility centres.


Product cost

The cost of goods or services produced.


Product market

A business’s investment in technology, people and materials in order to make, buy and sell products or services to customers.


Product/service mix

See sales mix.


Production overhead

A general term referring to indirect costs.


Residual income (RI)

The profit remaining after deducting from profit a notional cost of capital on the investment in a business or division of a business.


Periodic inventory system

An inventory system in which the balance in the Inventory account is adjusted for the units sold only at the end of the period.


Perpetual inventory system

An inventory system in which the balance in the Inventory account is adjusted for the units sold each time a sale is made.


product cost

This is a key factor in the profit model of a business. Product
cost is the same as purchase cost for a retailer or wholesaler (distributor).
A manufacturer has to accumulate three different types of production
costs to determine product cost: direct materials, direct labor, and
manufacturing overhead. The cost of products (goods) sold is deducted
from sales revenue to determine gross margin (also called gross profit),
which is the first profit line reported in an external income statement
and in an internal profit report to managers.


profit module

This concept refers to a separate source of revenue and
profit within a business organization, which should be identified for
management analysis and control. A profit module may focus on one
product or a cluster of products. Profit in this context is not the final, bottom-
line net income of the business as a whole. Rather, other measures
of profit are used for management analysis and decision-making purposes—
such as gross margin, contribution margin, or operating profit
(earnings before interest and income tax).


spontaneous liabilities

See operating liabilities.


Annuity Due

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


Duration

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


Residual Value

The value attributed to a company to represent all future cash flows
after the end of the forecast period


Systematic Risk

The amount of total risk that cannot be eliminated by portfolio
diversification. The risk inherent in the general economy as a
whole. Also known as market risk.


Unsystematic Risk

The amount of total risk that can be eliminated by diversification by
creating a portfolio. Also known as asset-specific risk or
company-specific risk.


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


annuity due

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


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


by-product

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


charge-back system

a system using transfer prices; see transfer
price


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


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)


dumping

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


Du Pont

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


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


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


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


flexible manufacturing system (FMS)

a production system in which a single factory manufactures numerous variations
of products through the use of computer-controlled
robots
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


grade (of product or service)

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



 

 

 

 

 

 

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