DuPont Analysis

A detailed approach used to dissect the components of a company’s return on equity (ROE) into profit margin, asset turnover, and financial leverage, helping to provide deeper insights into what is driving the company’s ROE. By breaking down ROE into these three elements, DuPont Analysis allows managers and investors to understand not only how much profit the company is generating relative to its equity, but also how efficiently it’s using its assets and how much it’s leveraging its debt. This comprehensive analysis helps identify specific strengths and weaknesses in the company’s financial strategy, facilitating more targeted improvements.