Investigating the Effect of Accounting System on the DuPont Analysis by Market Participants

Due to the fact that, the dominant approach in accounting standards is historical cost, the present study attempts to investigate whether the use of the system of historical cost for assets causes a decrease in the usefulness of DuPont ratio for investor or not. When in sum items the system of historical cost is adjusted the ratio of accounting tends to increase because of new evaluation. This fluctuation of the asset turnover in the form of DuPont ratio could result from economic forces and the effect of measurement system. In order to evaluate the range of the effect of measurement system, an average of the assets age is used. The sample under the study consisted of 145 companies during years 2005 to 2015. The result indicated that the asset turnover ratio and their persistence had a positive significant correlation with the asset age. In addition the error of the predication of the assets age had a positive significant correlation with the asset age and the future return of the companies.