How Does Union Pacific Boost Its Returns?http://www.fool.com/investing/general/2012/06/29/how-does-union-pacific-boost-its-returns.aspx Jim Royal
June 29, 2012
As investors, we need to understand how our companies truly make their money. A neat trick developed for just that purpose -- the DuPont formula -- can help us do so.
So in this series we let the DuPont do the work. Let's see what the formula can tell us about Union Pacific (NYSE: UNP ) and a few of its peers.
The DuPont formula can give you a better grasp on exactly where your company is producing its profit and where it might have a competitive advantage. Named after the company where it was pioneered, the formula breaks down return on equity into three components:
What makes each of these components important?
Generally, the higher these numbers, the better. That said, too much debt can sink a company, so beware of companies with very high leverage ratios.
So what does DuPont say about these four companies?