The DuPont analysis is a method of analyzing a company's return on equity (ROE). The framework breaks down the ROE into three components: the financial leverage, the net profit margin and the total asset turnover ratio. While the first component captures the company's financial activities, the second and third evaluate the business's operations. All three drive the ROE and allows investors to identify the company's financial weaknesses and strengths. The Dupont Analysis is also used to compare the operational efficiency of two similar companies.
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