Definition
DuPont analysis decomposes Return on Equity into three factors: profit margin (profitability), asset turnover (efficiency), and financial leverage. This reveals whether ROE comes from operations or leverage, helping identify improvement opportunities.
Formula
ROE = Net Margin × Asset Turnover × Equity Multiplier
Example
12% ROE = 6% margin × 1.5x turnover × 1.33x leverage. A competitor's 12% ROE might be 3% margin × 2.0x turnover × 2.0x leverage - same ROE, very different business models.
FAQ
What is DuPont Analysis?
Breaking down ROE into margin, turnover, and leverage components.
How do you calculate DuPont Analysis?
A common formula for DuPont Analysis is: ROE = Net Margin × Asset Turnover × Equity Multiplier
Why is DuPont Analysis important?
DuPont Analysis helps investors evaluate profitability and make more informed decisions.