1) Margin Multipliers

  • Gross Profit Margin = Gross Profit / Total Revenue
  • Net Profit Margin = Net Income / Total Revenue

2) Returns on Invested Capital

  • ROA = Net Income / Average Total Assets
  • ROE = Net Income / Average Total Stockholders’ Equity

3) DuPont (3-step)

  • ROE = Net Profit Margin × Asset Turnover × Equity Multiplier
  • ROE = (Net Income / Revenue) × (Revenue / Average Assets) × (Average Assets / Average Equity)
┌───────────────────────────────────────────────────────────────────────────┐
│                      DUPONT DRIER PERFORMANCE TRACING                     │
├─────────────────────────┬─────────────────────────┬───────────────────────┤
│    NET PROFIT MARGIN    │   TOTAL ASSET TURNOVER   │   EQUITY MULTIPLIER   │
├─────────────────────────┼─────────────────────────┼───────────────────────┤
│ • Tracks: Profitability │ • Tracks: Efficiency     │ • Tracks: Solvency    │
│ • Operational Focus:    │ • Operational Focus:    │ • Operational Focus:  │
│   Cost control and      │   Maximizing output and │   Financial leverage  │
│   pricing power         │   asset utilization     │   and debt usage      │
└─────────────────────────┴─────────────────────────┴───────────────────────┘

Analytical Value: If Company A and Company B both feature a 20% ROE, DuPont analysis reveals if that return is driven by high profit margins (e.g., premium luxury goods), rapid asset recycling (e.g., low-margin grocery retail), or dangerous over-leveraging with debt.
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