12. System of Metrics
“There are three kinds of economists: those who can count and those who can’t.”—Unknown source
Modeling 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 or “model” for this decomposition is the DuPont Model.
The first ratio in this simplified DuPont Model is called either the profit margin or return on sales. It measures how profitable is each dollar of sales. To the extent that marketers create products that ...