Lies, Damn Lies, and Statistics

Deck: 

How does the DuPont Model—a hybrid of which provides the methodology behind the Fortnightly 40 rankings—actually work? The author shares lessons learned during implementation of the hybrid model this year.

Fortnightly Magazine - September 2006
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The DuPont Model, like many financial analysis techniques, goes in and out of style. However, many analysts keep it in their bag of tools for evaluating the fundamentals of asset-heavy companies. It has a proven track record, is relatively simple, and provides intra-industry apples-to-apples comparative results. It often is used in conjunction with total shareholder return and other analyses to triangulate corporate values or performance.

During our analysis of the Fortnightly 40, the correlation between the results of the DuPont Model and stock-market results for the same group of 102 companies was questioned. This called for a closer examination.

Using the base group of investor-owned electric, gas, and pipeline utilities, we projected a value of $100 invested in each as of Jan. 1, 2003, and what the value of that investment would be on Dec. 31, 2005 (adjusted for splits and dividends)—the same time frame as this year’s Fortnightly 40 analysis.

Table 1 presents the top 10 in stock-price appreciation.

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