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DuPont analysis
DuPont analysis is a tool used in financial analysis, where return on equity (ROE) is separated into its component parts.
Useful in several contexts, this "decomposition" of ROE allows financial managers to focus on the key metrics of financial performance individually, and thereby to identify strengths and weaknesses within the company that should be addressed. Similarly, it allows investors to compare the operational efficiency of two comparable firms.
The name derives from the DuPont company, which began using this formula in the 1920s. A DuPont explosives salesman, Donaldson Brown, submitted an internal efficiency report to his superiors in 1912 that contained the formula.
The DuPont analysis breaks down ROE into three component parts, which may then be managed individually:
Or
Or
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 between industries). See Return on equity § The DuPont formula for further context.
The DuPont analysis is less useful for industries such as investment banking, in which the underlying elements are not meaningful (see related discussion: Valuation (finance) § Valuing financial services firms). Variations of the DuPont analysis have been developed for industries where the elements are weakly meaningful,[citation needed] for example:
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DuPont analysis AI simulator
(@DuPont analysis_simulator)
DuPont analysis
DuPont analysis is a tool used in financial analysis, where return on equity (ROE) is separated into its component parts.
Useful in several contexts, this "decomposition" of ROE allows financial managers to focus on the key metrics of financial performance individually, and thereby to identify strengths and weaknesses within the company that should be addressed. Similarly, it allows investors to compare the operational efficiency of two comparable firms.
The name derives from the DuPont company, which began using this formula in the 1920s. A DuPont explosives salesman, Donaldson Brown, submitted an internal efficiency report to his superiors in 1912 that contained the formula.
The DuPont analysis breaks down ROE into three component parts, which may then be managed individually:
Or
Or
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 between industries). See Return on equity § The DuPont formula for further context.
The DuPont analysis is less useful for industries such as investment banking, in which the underlying elements are not meaningful (see related discussion: Valuation (finance) § Valuing financial services firms). Variations of the DuPont analysis have been developed for industries where the elements are weakly meaningful,[citation needed] for example: