Originally developed by DuPont, this ROI model is now in worldwide use. It’s a fast, convenient financial measure that helps executives understand the relationships among profit, sales, and total assets. In particular, the model shows how businesses generate profit and how well a company uses assets to generate sales. At its most basic level, the formula is:
Business-case developers should craft benefit plans that improve turnover and profitability. A business plan that just increases profits and causes assets to swell is damaging to ROI. Conversely, a plan to increase sales while decreasing total assets (say, by improving turnover) is desirable to shareholders.
The flow chart illustrates the underlying subcomponents of the DuPont ROI model. Each subcomponent can be altered to affect share price. These are the business drivers you need to focus on in new business cases.