Macroeconomics & Investing · Entry 27 of 71

What is DuPont Analysis?

Deconstructing Return on Equity (ROE) into operating components

Core Definition

DuPont Analysis is a method for assessing a company's profitability by breaking down its Return on Equity

(ROE) into three key components

1. Profit Margin: Measures profitability (Net Income / Revenue).
2. Asset Turnover: Measures operating efficiency (Revenue / Average Assets).
3. Financial Leverage: Measures the use of debt (Average Assets / Average Equity).

Mathematical Formula

ROE = Profit Margin × Asset Turnover × Financial Leverage