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Finance
DuPont Analysis
A method that breaks return on equity into three parts: profit margin, asset turnover, and financial leverage.
DuPont formula = Profit Margin × Asset Turnover × Equity Multiplier. It was developed by DuPont in the early 1900s and is still one of the most useful ways to understand what drives a company's return on equity.
It's taking apart the engine of ROE to see exactly which parts are working well.
Real world: Two companies both have 15% ROE. DuPont analysis shows one has high profit margin but low asset turnover, while the other has low margin but very high asset turnover. Managers can see exactly where to focus improvements.
💡 DuPont analysis shows you exactly why your ROE is high or low.