📐DuPont Analysis

Three-Part DuPont Formula

ROE = Profit Margin × Asset Turnover × Equity Multiplier

What It Means

Breaks down ROE into three drivers: profitability, efficiency, and leverage.

Profit Margin:10%

Asset Turnover:1.5

Equity Multiplier:2.0

10% × 1.5 × 2.0

ROE = 30%

→ Leverage (2.0) amplifies the 15% return on assets to 30% ROE

ROE = (Net Income ÷ Sales) × (Sales ÷ Avg Assets) × (Avg Assets ÷ Avg Equity)

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