StockEducation
← Introduction to Financial Analysis

Part II- Ratio Analysis and Forecasting Modeling

6.3: The DuPont Model

51 of 150 · 95 words

From Introduction to Financial Analysis by LibreTexts (Kenneth S. Bigel, Touro University), used under the CC BY 4.0 licence. Written for a general audience, not for NEPSE.

The DuPont formula provides upper management with a top-down look into the company’s performance starting with ROE, which is of the most interest to company shareholders. The CEO looks into : 1. P rofitability ( “Profit Margin” – see below) , 2. O peratin g ( “Total Asset Turnover”) , and 3. F inancial perspectives (“Leverage”) .

  1. 1Good business management produces a favorable ROA.
  2. 2Proper leverage may enhance the investor’s return – ROE. Without Leverage, ROA = ROE.
  3. 3You will notice that the ROA and Leverage ratios do not match up with our own definitions.

This chapter at LibreTexts (Kenneth S. Bigel, Touro University). Tables and text are reproduced; images, videos and quizzes are not.