548:
31:
453:
543:{\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}}}}
434:
331:, 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.
343:
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
307:
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
378:
360:, 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.
348:
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).
429:{\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}}}}
372:
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.
793:
315:
The DuPont analysis is less useful for industries such as investment banking, in which the underlying elements are not meaningful (see related discussion:
443:
is a measure of the rate of return to stockholders. Decomposing the ROE into various factors influencing company performance is often called the
656:
786:
84:
individually, and thereby to identify strengths and weaknesses within the company that should be addressed. Similarly, it allows
319:). Variations of the DuPont analysis have been developed for industries where the elements are weakly meaningful, for example:
81:
779:
585:
burden is (Net income ÷ Pretax profit). This is the proportion of the company's profits retained after paying income taxes.
344:
metric, and hence asset turnover may be studied extremely carefully for signs of under-, or, over-performance. For example,
1024:
316:
562:
742:
717:
692:
1049:
761:
17:
1043:
1526:
1466:
1262:
1168:
766:
1252:
1220:
1124:
1078:
1061:
1014:
111:
The DuPont analysis breaks down ROE into three component parts, which may then be managed individually:
1037:
1031:
309:
89:
1572:
1426:
1101:
1380:
1241:
1136:
1019:
192:
1268:
103:, submitted an internal efficiency report to his superiors in 1912 that contained the formula.
588:
The company's interest burden is (Pretax income ÷ EBIT). This will be 1.00 for a firm with no
1406:
1215:
1541:
1461:
1226:
1210:
1173:
1055:
998:
966:
661:
574:
638:
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is (Average Total Assets ÷ Average Total Equity). This is a measure of financial leverage.
8:
1471:
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1340:
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1130:
959:
932:
85:
1511:
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66:
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1112:
738:
713:
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77:
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company, which began using this formula in the 1920s. A DuPont explosives salesman,
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603:(ROS) is (EBIT ÷ Revenue). This is the operating income per dollar of sales.
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1411:
1231:
1205:
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657:"The DuPont invention that changed how things work in the corporate world"
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1118:
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ROE = (Profit margin)×(Asset turnover)×(Equity multiplier) =
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986:
771:
1335:
971:
1179:
30:
922:
567:
Pretax Income is often reported as
Earnings Before Taxes or EBT
340:
184:
172:
96:
76:
Useful in several contexts, this "decomposition" of ROE allows
27:
Expression which breaks ROE (return on equity) into three parts
845:
164:
152:
732:
589:
317:
Valuation (finance) § Valuing financial services firms
582:
707:
682:
687:. Barron's Educational Series, Inc. pp. 444–445.
456:
381:
573:This decomposition presents various ratios used in
542:
428:
712:. Barron's Educational Series, Inc. p. 444.
1564:
733:Bodie, Zane; Alex Kane; Alan J. Marcus (2004).
708:Groppelli, Angelico A.; Ehsan Nikbakht (2000).
683:Groppelli, Angelico A.; Ehsan Nikbakht (2000).
787:
73:(ROE) is separated into its component parts.
34:Graphical representation of DuPont analysis.
351:
334:
794:
780:
633:
631:
610:(ATO) is (Revenue ÷ Average Total Assets).
310:Return on equity § The DuPont formula
322:
654:
29:
737:. McGraw-Hill Irwin. pp. 458–459.
628:
555:Net Income = pre-tax income after taxes
14:
1565:
801:
775:
297:ROE = ROS×AT = ROA×Leverage
363:
24:
655:Phillips, Matt (9 December 2015).
563:Earnings before interest and taxes
25:
1589:
755:
735:Essentials of Investments, 5th ed
1050:Electronic communication network
106:
302:
80:to focus on the key metrics of
726:
701:
676:
648:
121:Asset efficiency: measured by
13:
1:
1044:Multilateral trading facility
621:
558:Equity = shareholders' equity
327:Some industries, such as the
1467:Returns-based style analysis
1263:Post-modern portfolio theory
1169:Security characteristic line
441:return on equity (ROE) ratio
370:return on assets (ROA) ratio
7:
1221:Efficient-market hypothesis
1125:Capital asset pricing model
1062:Straight-through processing
115:Profitability: measured by
10:
1594:
1038:Alternative Trading System
637:Marshall Hargrave (2022).
356:Some sectors, such as the
95:The name derives from the
1313:
1188:
1087:
1007:
915:
882:
843:
809:
308:between industries). See
92:of two comparable firms.
1102:Arbitrage pricing theory
762:Decoding DuPont Analysis
352:High leverage industries
335:High turnover industries
1381:Initial public offering
1242:Modern portfolio theory
1137:Dividend discount model
1020:List of stock exchanges
597:operating income margin
592:or financial leverage.
1269:Random walk hypothesis
544:
430:
323:High margin industries
90:operational efficiency
35:
1407:Market capitalization
1216:Dollar cost averaging
545:
431:
312:for further context.
82:financial performance
33:
1227:Fundamental analysis
1211:Contrarian investing
1174:Security market line
1079:Liquidity aggregator
1056:Direct market access
967:Quantitative analyst
662:Quartz (publication)
575:fundamental analysis
536:Average Total Equity
533:Average Total Assets
523:Average Total Assets
471:Average Total Equity
454:
422:Average Total Assets
409:Average Total Assets
379:
185:Average Total Assets
173:Average Total Assets
65:) is a tool used in
1472:Reverse stock split
1417:Market manipulation
1341:Dual-listed company
1201:Algorithmic trading
1131:Capital market line
933:Inter-dealer broker
41:(also known as the
1512:Stock market index
1351:Efficient frontier
1290:Technical analysis
1248:Momentum investing
1070:(private exchange)
960:Proprietary trader
902:Shares outstanding
892:Authorised capital
540:
426:
128:Financial leverage
78:financial managers
67:financial analysis
36:
1560:
1559:
1361:Flight-to-quality
1113:Buffett indicator
803:Financial markets
615:equity multiplier
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364:ROA and ROE ratio
339:Certain types of
132:equity multiplier
16:(Redirected from
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1573:Financial ratios
1477:Share repurchase
1189:Trading theories
1074:Crossing network
1032:Over-the-counter
869:Restricted stock
825:Secondary market
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358:financial sector
346:same-store sales
329:fashion industry
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71:return on equity
51:DuPont framework
21:
18:Du Pont Identity
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1547:Voting interest
1457:Public offering
1392:Mandatory offer
1366:Government bond
1346:DuPont analysis
1309:
1305:Value investing
1300:Value averaging
1295:Trend following
1280:Style investing
1275:Sector rotation
1190:
1184:
1163:Net asset value
1089:Stock valuation
1083:
1003:
911:
878:
864:Preferred stock
839:
805:
800:
767:DuPont analysis
758:
753:
752:
745:
731:
727:
720:
710:Finance, 4th ed
706:
702:
695:
685:Finance, 4th ed
681:
677:
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639:Dupont Analysis
636:
629:
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601:return on sales
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101:Donaldson Brown
88:to compare the
47:DuPont equation
43:DuPont identity
39:DuPont analysis
28:
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12:
11:
5:
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1504:
1502:Stock dilution
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1427:Mean reversion
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1402:Market anomaly
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1321:Bid–ask spread
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1148:Earnings yield
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1143:Dividend yield
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1034:(off-exchange)
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1008:Trading venues
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874:Tracking stock
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820:Primary market
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756:External links
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606:The company's
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581:The company's
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193:Average Equity
135:
134:
130:: measured by
125:
123:asset turnover
119:
108:
105:
26:
9:
6:
4:
3:
2:
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1483:
1482:Short selling
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1398:
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1385:
1382:
1379:
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1374:
1372:
1371:Greenspan put
1369:
1367:
1364:
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1359:
1357:
1356:Financial law
1354:
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1342:
1339:
1337:
1334:
1332:
1331:Cross listing
1329:
1327:
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1319:
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1316:
1314:Related terms
1312:
1306:
1303:
1301:
1298:
1296:
1293:
1291:
1288:
1286:
1285:Swing trading
1283:
1281:
1278:
1276:
1273:
1270:
1267:
1264:
1261:
1259:
1256:
1254:
1253:Mosaic theory
1251:
1249:
1246:
1243:
1240:
1238:
1237:Market timing
1235:
1233:
1230:
1228:
1225:
1222:
1219:
1217:
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1207:
1204:
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1199:
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1080:
1077:
1075:
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1060:
1057:
1054:
1051:
1048:
1045:
1042:
1039:
1036:
1033:
1030:
1026:
1025:Trading hours
1023:
1021:
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1017:
1016:
1013:
1012:
1010:
1006:
1000:
997:
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988:
985:
983:
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975:
973:
970:
968:
965:
961:
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953:
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951:
948:
946:
943:
941:
940:Broker-dealer
938:
934:
931:
929:
926:
925:
924:
921:
920:
918:
914:
908:
905:
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898:
897:Issued shares
895:
893:
890:
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885:
884:Share capital
881:
875:
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870:
867:
865:
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849:
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842:
836:
835:Fourth market
833:
831:
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797:
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765:
763:
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746:
744:0-07-251077-3
740:
736:
729:
721:
719:0-7641-1275-9
715:
711:
704:
696:
694:0-7641-1275-9
690:
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527:
514:
501:
494:Pretax Income
488:
484:Pretax Income
475:
462:
450:
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448:
446:
445:DuPont system
442:
413:
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117:profit margin
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107:Basic formula
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63:DuPont system
60:
59:DuPont method
56:
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48:
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40:
32:
19:
1532:Tender offer
1452:Public float
1422:Market trend
1412:Market depth
1345:
1232:Growth stock
1206:Buy and hold
1115:(Cap-to-GDP)
955:Floor trader
945:Market maker
928:Floor broker
916:Participants
859:Golden share
854:Common stock
830:Third market
734:
728:
709:
703:
684:
678:
666:. Retrieved
660:
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643:Investopedia
614:
596:
572:
444:
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355:
338:
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314:
306:
303:ROE analysis
291:
218:
110:
94:
75:
62:
58:
55:DuPont model
54:
50:
46:
42:
38:
37:
1537:Uptick rule
1517:Stock split
1497:Squeeze-out
1492:Speculation
1437:Open outcry
1326:Block trade
1258:Pairs trade
1567:Categories
1542:Volatility
1522:Stock swap
1442:Order book
1193:strategies
1119:Book value
987:Arbitrager
982:Speculator
668:9 December
622:References
481:Net Income
468:Net Income
419:Net income
393:Net Income
204:Net Profit
145:Net profit
1158:Fed model
1153:EV/EBITDA
1068:Dark pool
999:Regulator
844:Types of
810:Types of
528:×
515:×
502:×
489:×
401:×
86:investors
1487:Slippage
1447:Position
1432:Momentum
1336:Dividend
1015:Exchange
972:Investor
69:, where
1376:Haircut
1180:T-model
992:Scalper
812:markets
561:EBIT =
520:Revenue
510:Revenue
406:Revenue
396:Revenue
286:
274:
270:
258:
254:
242:
238:
226:
213:
201:
197:
181:
177:
161:
157:
141:
1578:DuPont
1397:Margin
1265:(PMPT)
1127:(CAPM)
977:Hedger
950:Trader
923:Broker
846:stocks
741:
716:
691:
552:Where
341:retail
283:Equity
277:Assets
272:×
267:Assets
261:Profit
251:Assets
240:×
229:Profit
224:ROE =
210:Equity
179:×
159:×
97:DuPont
1552:Yield
1527:Trade
1462:Rally
1383:(IPO)
1271:(RMH)
1244:(MPT)
1223:(EMH)
1176:(SML)
1165:(NAV)
1139:(DDM)
1133:(CML)
1104:(APT)
1097:Alpha
1064:(STP)
1058:(DMA)
1052:(ECN)
1046:(MTF)
1040:(ATS)
245:Sales
235:Sales
165:Sales
153:Sales
1387:Long
1191:and
1121:(BV)
1108:Beta
739:ISBN
714:ISBN
689:ISBN
670:2015
590:debt
507:EBIT
497:EBIT
439:The
368:The
292:Or
219:Or
599:or
583:tax
577:.
459:ROE
384:ROA
61:or
1569::
659:.
641:,
630:^
447:.
256:=
199:=
57:,
53:,
49:,
45:,
795:e
788:t
781:v
747:.
722:.
697:.
672:.
645:.
476:=
463:=
414:=
388:=
280:/
264:/
248:/
232:/
207:/
189:/
169:/
149:/
20:)
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