DuPont analysis
DuPont analysis is a simple method to understand what drives a company’s return on equity (ROE). It splits ROE into three key parts—profitability, efficiency, and leverage—so managers can see what to improve and investors can compare firms more clearly.
Origin: The approach originated with DuPont in the 1920s. A DuPont salesman, Donaldson Brown, helped formalize the formula.
The three components:
- Profit margin (net income ÷ revenue): how much profit is earned from each dollar of sales.
- Asset turnover (revenue ÷ total assets): how efficiently assets generate sales.
- Equity multiplier (total assets ÷ equity): how much financial leverage is used.
ROE = profit margin × asset turnover × equity multiplier. ROE can rise because the company earns more profit per sale, uses assets more efficiently, or uses more debt relative to equity.
Why this matters:
- It helps identify whether ROE changes are driven by margins, asset use, or leverage.
- It allows apples-to-apples comparisons between similar firms.
Industry notes: In some sectors, especially financial services, leverage has a bigger impact on ROE. In others, like fashion or retail, margins or turnover may dominate. The model can be adjusted to reflect which elements matter most for a given industry.
Related concept: ROA (return on assets) can be analyzed as ROA = profit margin × asset turnover. Since ROE = ROA × equity multiplier, you can see how profitability and efficiency combine with leverage to affect shareholder returns.
Takeaway: DuPont analysis is a practical framework for dissecting ROE, spotting strengths and weaknesses, and comparing performance over time or across peers.
This page was last edited on 3 February 2026, at 02:45 (CET).