DuPont analysis is a diagnostic framework that breaks down Return on Equity (ROE) into its core operational, efficiency, and financial leverage drivers.

Analytical Perspectives

• The Three-Step Breakdown: Decomposing ROE into Profit Margin (operational efficiency), Asset Turnover (asset utilization efficiency), and the Equity Multiplier (financial leverage).

• The Five-Step Breakdown: Further isolating the profit margin into tax burden, interest burden, and operating profit margin to pinpoint specific performance drivers.

• Quality of ROE: Dissecting whether a rising ROE is driven by genuine operational improvements or by taking on high-risk financial debt.