Key Marketing Metrics, 3rd Edition

14

System of metrics

“There are three kinds of economists: those who can count and those who can’t.”

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14.1Modeling firm performance

To better understand the factors contributing to overall firm success, managers and analysts often decompose return on assets (ROA) into the product of two ratios, with each ratio reflecting a different aspect of the business. One popular approach for this decomposition is the DuPont model, which states

$\text{ROA}=\frac{\text{Net Profit}}{\text{Sales}}\times \frac{\text{Sales}}{\text{Assets}}$

The first ratio in this simplified DuPont model is called either the profit margin or return on sales. It measures profits as a percentage of sales. To the extent that marketers create products that customers value, claim that value through intelligent pricing, drive ...