Du Pont analysis decomposes return-on-net-operating assets (RNOA) into two multiplicative components: profit margin and asset turnover, both of which are largely driven by industry membership. The analysis is a useful tool in predicting future changes in RNOA. We can use the model to predict future changes in RNOA in both in-sample and out-of-sample forecasting tests.
RNOA indicate the efficiency with which the firm is utilizing its operating net assets to generate profits. In the year 2000, Powell Panther Corporation generated $15.4 as profit after tax for every $100. In the year 2001, RNOA increased to $18, this being an upward trend at the rate of 16.8% as shown below.