The Improving Discussion On Du Pont System Which Introduces Cash Flow Indicators

At present,. China's market economic system is in a period of development and improvement. The modern enterprise system gradually standardized. At the same time, as the capital market continued to be refined, the diversification of investors, and the complex of investment and means of financing, the orientation of investment diversification, investment activities and financing activities which has become a major activity. This will also lead to the unceasing increase in the uncertainty and the fatalness of the enterprise management. The existence of these factors make the enterprise investors, the creditors as well as the collectivity and individual which have benefit relations with the enterprise, even more pay attention to the information about the ability of paying off a debt and profiting and management process and so on. Under these circumstances, how to evaluate the operating performance of an enterprise correctly seems even more significant. To make a correct evaluation for the operating performance of an enterprise, financial analysis is really significant, the Du Pont system is the most proper financial analysis method. However, there are deficiencies and defects. From the mid-20th century onwards, cash flow information attracts more and more attention. Currently, cash flow management has been regarded as the most important management during the modern enterprise management. To evaluate the operating performance of an enterprise, cash flow analysis has an important role:the structural analysis of cash flow can be used to evaluate the ability of creating and obtaining cash for an enterprise; the liquidity analysis can be used to evaluate the ability of paying for an enterprise; the analysis of earning quality can be used to evaluate the quality of earnings for an enterprise; and so on. However, Du Pont system as an effective tool for financial analysis does not have any information about cash flow. So it is not accurate to reflect the company's operating results, and does not completely meet the different user's needs. Therefore, building a Du Pont system which including cash flow indicators have the theoretical and practical meaning.The purpose of this paper is to create a new synthetic financial analysis system which including cash flow indicators. It could be more comprehensive and accurate to evaluate the operating performance of an enterprise, meet the needs of current financial management, and serve the internal operation. This is also the feature of this paper. The research starts from the theory, functions and limitations of DuPont financial analysis system. Through introducing the functions of cash flow information, and then elaborating the role of introducing cash flow indicators into the DuPont system, it concludes that it is necessary to improve the traditional DuPont system from the perspective of cash flow. Then introducing the selection of cash flow indicators and the improvement of DuPont system. Next, re-decomposing Return On Equity to build a fairly complete DuPont system which including the main indicators, the secondary indicators and the based indicators. Finally, selecting a typical listed company as an example, respectively, using the traditional DuPont system and the improved DuPont system which including cash flow indicators to make evaluations for the operating performance of the typical listed company, then gaining inspiration by comparison.The paper is divided into four chapters, the main parts of study as follows:The first chapter is the overview of DuPont system. It includes the theory of DuPont system, the functions of DuPont system and the limitations of DuPont system.The second chapter is the role of cash flow and the improvement of DuPont system. It starts from introducing the information function of cash flow, elaborates the role of cash flow index, further elaborates the choice of cash flow index and the improvement of DuPont system.The third chapter is the building of improved DuPont system. It re-decomposes Return On Equity to build a fairly complete DuPont system which including the main indicators, the secondary indicators and the based indicators.The fourth chapter is the application of the improved DuPont system in the "A" company. This chapter separately applies the traditional and improved DuPont system to analyze the finance of company named "A", and then infers inspiration by comparing the two results.