537:
20:
442:
532:{\displaystyle {\text{ROE}}={\frac {\text{Net Income}}{\text{Average Total Equity}}}={\frac {\text{Net Income}}{\text{Pretax Income}}}\times {\frac {\text{Pretax Income}}{\text{EBIT}}}\times {\frac {\text{EBIT}}{\text{Revenue}}}\times {\frac {\text{Revenue}}{\text{Average Total Assets}}}\times {\frac {\text{Average Total Assets}}{\text{Average Total Equity}}}}
423:
320:, may derive a substantial portion of their income from selling at a higher margin, rather than higher sales. For high-end fashion brands, increasing sales without sacrificing margin may be critical. The DuPont analysis allows analysts to determine which of the elements is dominant in any change of ROE.
332:
operations, particularly stores, may have very low profit margins on sales, and relatively moderate leverage. In contrast, though, groceries may have very high turnover, selling a significant multiple of their assets per year. The ROE of such firms may be particularly dependent on performance of this
296:
The DuPont analysis breaks down ROE (that is, the returns that investors receive from a single dollar of equity) into three distinct elements. This analysis enables the manager or analyst to understand the source of superior (or inferior) return by comparison with companies in similar industries (or
367:
349:, rely on high leverage to generate acceptable ROE. Other industries would see high levels of leverage as unacceptably risky. DuPont analysis enables third parties that rely primarily on their financial statements to compare leverage among similar companies.
337:
of many retailers is considered important as an indication that the firm is deriving greater profits from existing stores (rather than showing improved performance by continually opening stores).
418:{\displaystyle {\text{ROA}}={\frac {\text{Net Income}}{\text{Revenue}}}\times {\frac {\text{Revenue}}{\text{Average Total Assets}}}={\frac {\text{Net income}}{\text{Average Total Assets}}}}
361:
developed by DuPont for its own use is now used by many firms to evaluate how effectively assets are used. It measures the combined effects of profit margins and asset turnover.
782:
304:
The DuPont analysis is less useful for industries such as investment banking, in which the underlying elements are not meaningful (see related discussion:
432:
is a measure of the rate of return to stockholders. Decomposing the ROE into various factors influencing company performance is often called the
645:
775:
73:
individually, and thereby to identify strengths and weaknesses within the company that should be addressed. Similarly, it allows
308:). Variations of the DuPont analysis have been developed for industries where the elements are weakly meaningful, for example:
70:
768:
574:
burden is (Net income ÷ Pretax profit). This is the proportion of the company's profits retained after paying income taxes.
333:
metric, and hence asset turnover may be studied extremely carefully for signs of under-, or, over-performance. For example,
1013:
305:
551:
731:
706:
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1038:
750:
1032:
1515:
1455:
1251:
1157:
755:
1241:
1209:
1113:
1067:
1050:
1003:
100:
The DuPont analysis breaks down ROE into three component parts, which may then be managed individually:
1026:
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1561:
1415:
1090:
1369:
1230:
1125:
1008:
181:
1257:
92:, submitted an internal efficiency report to his superiors in 1912 that contained the formula.
577:
The company's interest burden is (Pretax income ÷ EBIT). This will be 1.00 for a firm with no
1395:
1204:
1530:
1450:
1215:
1199:
1162:
1044:
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is (Average Total Assets ÷ Average Total Equity). This is a measure of financial leverage.
8:
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1119:
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74:
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company, which began using this formula in the 1920s. A DuPont explosives salesman,
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592:(ROS) is (EBIT ÷ Revenue). This is the operating income per dollar of sales.
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646:"The DuPont invention that changed how things work in the corporate world"
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133:
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ROE = (Profit margin)×(Asset turnover)×(Equity multiplier) =
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760:
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960:
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19:
911:
556:
Pretax Income is often reported as
Earnings Before Taxes or EBT
329:
173:
161:
85:
65:
Useful in several contexts, this "decomposition" of ROE allows
16:
Expression which breaks ROE (return on equity) into three parts
834:
153:
141:
721:
578:
306:
Valuation (finance) § Valuing financial services firms
571:
696:
671:
676:. Barron's Educational Series, Inc. pp. 444–445.
445:
370:
562:This decomposition presents various ratios used in
531:
417:
701:. Barron's Educational Series, Inc. p. 444.
1553:
722:Bodie, Zane; Alex Kane; Alan J. Marcus (2004).
697:Groppelli, Angelico A.; Ehsan Nikbakht (2000).
672:Groppelli, Angelico A.; Ehsan Nikbakht (2000).
776:
62:(ROE) is separated into its component parts.
23:Graphical representation of DuPont analysis.
340:
323:
783:
769:
622:
620:
599:(ATO) is (Revenue ÷ Average Total Assets).
299:Return on equity § The DuPont formula
311:
643:
18:
726:. McGraw-Hill Irwin. pp. 458–459.
617:
544:Net Income = pre-tax income after taxes
1554:
790:
764:
286:ROE = ROS×AT = ROA×Leverage
352:
13:
644:Phillips, Matt (9 December 2015).
552:Earnings before interest and taxes
14:
1578:
744:
724:Essentials of Investments, 5th ed
1039:Electronic communication network
95:
291:
69:to focus on the key metrics of
715:
690:
665:
637:
110:Asset efficiency: measured by
1:
1033:Multilateral trading facility
610:
547:Equity = shareholders' equity
316:Some industries, such as the
1456:Returns-based style analysis
1252:Post-modern portfolio theory
1158:Security characteristic line
430:return on equity (ROE) ratio
359:return on assets (ROA) ratio
7:
1210:Efficient-market hypothesis
1114:Capital asset pricing model
1051:Straight-through processing
104:Profitability: measured by
10:
1583:
1027:Alternative Trading System
626:Marshall Hargrave (2022).
345:Some sectors, such as the
84:The name derives from the
1302:
1177:
1076:
996:
904:
871:
832:
798:
297:between industries). See
81:of two comparable firms.
1091:Arbitrage pricing theory
751:Decoding DuPont Analysis
341:High leverage industries
324:High turnover industries
1370:Initial public offering
1231:Modern portfolio theory
1126:Dividend discount model
1009:List of stock exchanges
586:operating income margin
581:or financial leverage.
1258:Random walk hypothesis
533:
419:
312:High margin industries
79:operational efficiency
24:
1396:Market capitalization
1205:Dollar cost averaging
534:
420:
301:for further context.
71:financial performance
22:
1216:Fundamental analysis
1200:Contrarian investing
1163:Security market line
1068:Liquidity aggregator
1045:Direct market access
956:Quantitative analyst
651:Quartz (publication)
564:fundamental analysis
525:Average Total Equity
522:Average Total Assets
512:Average Total Assets
460:Average Total Equity
443:
411:Average Total Assets
398:Average Total Assets
368:
174:Average Total Assets
162:Average Total Assets
54:) is a tool used in
1461:Reverse stock split
1406:Market manipulation
1330:Dual-listed company
1190:Algorithmic trading
1120:Capital market line
922:Inter-dealer broker
30:(also known as the
1501:Stock market index
1340:Efficient frontier
1279:Technical analysis
1237:Momentum investing
1059:(private exchange)
949:Proprietary trader
891:Shares outstanding
881:Authorised capital
529:
415:
117:Financial leverage
67:financial managers
56:financial analysis
25:
1549:
1548:
1350:Flight-to-quality
1102:Buffett indicator
792:Financial markets
604:equity multiplier
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353:ROA and ROE ratio
328:Certain types of
121:equity multiplier
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1562:Financial ratios
1466:Share repurchase
1178:Trading theories
1063:Crossing network
1021:Over-the-counter
858:Restricted stock
814:Secondary market
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347:financial sector
335:same-store sales
318:fashion industry
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60:return on equity
40:DuPont framework
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1536:Voting interest
1446:Public offering
1381:Mandatory offer
1355:Government bond
1335:DuPont analysis
1298:
1294:Value investing
1289:Value averaging
1284:Trend following
1269:Style investing
1264:Sector rotation
1179:
1173:
1152:Net asset value
1078:Stock valuation
1072:
992:
900:
867:
853:Preferred stock
828:
794:
789:
756:DuPont analysis
747:
742:
741:
734:
720:
716:
709:
699:Finance, 4th ed
695:
691:
684:
674:Finance, 4th ed
670:
666:
656:
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642:
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628:Dupont Analysis
625:
618:
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590:return on sales
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98:
90:Donaldson Brown
77:to compare the
36:DuPont equation
32:DuPont identity
28:DuPont analysis
17:
12:
11:
5:
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1491:Stock dilution
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1416:Mean reversion
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1391:Market anomaly
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1310:Bid–ask spread
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1137:Earnings yield
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1132:Dividend yield
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1023:(off-exchange)
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997:Trading venues
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863:Tracking stock
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809:Primary market
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745:External links
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602:The company's
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595:The company's
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584:The company's
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570:The company's
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206:
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182:Average Equity
124:
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119:: measured by
114:
112:asset turnover
108:
97:
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15:
9:
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1471:Short selling
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1360:Greenspan put
1358:
1356:
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1346:
1345:Financial law
1343:
1341:
1338:
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1328:
1326:
1323:
1321:
1320:Cross listing
1318:
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1308:
1307:
1305:
1303:Related terms
1301:
1295:
1292:
1290:
1287:
1285:
1282:
1280:
1277:
1275:
1274:Swing trading
1272:
1270:
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1250:
1248:
1245:
1243:
1242:Mosaic theory
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1229:
1227:
1226:Market timing
1224:
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1028:
1025:
1022:
1019:
1015:
1014:Trading hours
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989:
986:
982:
979:
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974:
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947:
945:
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941:
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935:
932:
930:
929:Broker-dealer
927:
923:
920:
918:
915:
914:
913:
910:
909:
907:
903:
897:
894:
892:
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886:Issued shares
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882:
879:
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876:
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873:Share capital
870:
864:
861:
859:
856:
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851:
849:
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844:
841:
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838:
836:
831:
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824:Fourth market
822:
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806:
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802:
797:
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786:
781:
779:
774:
772:
767:
766:
763:
757:
754:
752:
749:
748:
735:
733:0-07-251077-3
729:
725:
718:
710:
708:0-7641-1275-9
704:
700:
693:
685:
683:0-7641-1275-9
679:
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653:
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633:
629:
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569:
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540:
516:
503:
490:
483:Pretax Income
477:
473:Pretax Income
464:
451:
439:
438:
437:
435:
434:DuPont system
431:
402:
389:
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364:
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106:profit margin
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96:Basic formula
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52:DuPont system
49:
48:DuPont method
45:
41:
37:
33:
29:
21:
1521:Tender offer
1441:Public float
1411:Market trend
1401:Market depth
1334:
1221:Growth stock
1195:Buy and hold
1104:(Cap-to-GDP)
944:Floor trader
934:Market maker
917:Floor broker
905:Participants
848:Golden share
843:Common stock
819:Third market
723:
717:
698:
692:
673:
667:
655:. Retrieved
649:
639:
632:Investopedia
603:
585:
561:
433:
429:
427:
358:
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344:
327:
315:
303:
295:
292:ROE analysis
280:
207:
99:
83:
64:
51:
47:
44:DuPont model
43:
39:
35:
31:
27:
26:
1526:Uptick rule
1506:Stock split
1486:Squeeze-out
1481:Speculation
1426:Open outcry
1315:Block trade
1247:Pairs trade
1556:Categories
1531:Volatility
1511:Stock swap
1431:Order book
1182:strategies
1108:Book value
976:Arbitrager
971:Speculator
657:9 December
611:References
470:Net Income
457:Net Income
408:Net income
382:Net Income
193:Net Profit
134:Net profit
1147:Fed model
1142:EV/EBITDA
1057:Dark pool
988:Regulator
833:Types of
799:Types of
517:×
504:×
491:×
478:×
390:×
75:investors
1476:Slippage
1436:Position
1421:Momentum
1325:Dividend
1004:Exchange
961:Investor
58:, where
1365:Haircut
1169:T-model
981:Scalper
801:markets
550:EBIT =
509:Revenue
499:Revenue
395:Revenue
385:Revenue
275:
263:
259:
247:
243:
231:
227:
215:
202:
190:
186:
170:
166:
150:
146:
130:
1567:DuPont
1386:Margin
1254:(PMPT)
1116:(CAPM)
966:Hedger
939:Trader
912:Broker
835:stocks
730:
705:
680:
541:Where
330:retail
272:Equity
266:Assets
261:×
256:Assets
250:Profit
240:Assets
229:×
218:Profit
213:ROE =
199:Equity
168:×
148:×
86:DuPont
1541:Yield
1516:Trade
1451:Rally
1372:(IPO)
1260:(RMH)
1233:(MPT)
1212:(EMH)
1165:(SML)
1154:(NAV)
1128:(DDM)
1122:(CML)
1093:(APT)
1086:Alpha
1053:(STP)
1047:(DMA)
1041:(ECN)
1035:(MTF)
1029:(ATS)
234:Sales
224:Sales
154:Sales
142:Sales
1376:Long
1180:and
1110:(BV)
1097:Beta
728:ISBN
703:ISBN
678:ISBN
659:2015
579:debt
496:EBIT
486:EBIT
428:The
357:The
281:Or
208:Or
588:or
572:tax
566:.
448:ROE
373:ROA
50:or
1558::
648:.
630:,
619:^
436:.
245:=
188:=
46:,
42:,
38:,
34:,
784:e
777:t
770:v
736:.
711:.
686:.
661:.
634:.
465:=
452:=
403:=
377:=
269:/
253:/
237:/
221:/
196:/
178:/
158:/
138:/
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