Quick Definition

DuPont Analysis is a financial ratio technique that decomposes the factors driving a company's return on equity (ROE) into three distinct components, helping analysts understand the sources of profitability.

Formula

Examples

• 1A company with a high ROE due to high asset turnover might focus on maintaining efficient operations rather than increasing financial leverage.
• 2A business experiencing low profit margins might use DuPont Analysis to pinpoint operational inefficiencies or pricing strategies that need adjustment.
• 3Investors use DuPont Analysis to compare companies within the same industry to identify those with superior operational management or financial structuring.

Tags