2016-12-21 00:00:00 Finance and Accounting English Learn what the DuPont Analysis is, how small businesses can use it to analyze return on equity, and see the formula involved. https://d1bkf7psx818ah.cloudfront.net/wp-content/uploads/2017/03/08214544/Business-Owner-Reviews-His-Companys-Return-On-Equity.jpg Small Business Terms: Dupont Analysis

Small Business Terms: Dupont Analysis

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The DuPont Analysis is a method of breaking down a company’s return on equity to better understand the drives behind the company’s return on equity. DuPont Analysis helps identify problem areas within a business that can then be individually corrected to enhance the value of return on equity. The formula for the analysis is:

Return on equity = profit margin x asset turnover x equity multiplier

This breaks down further to:Return on equity = (net income / sales) x (sales / assets) x (assets / equity)

Once the return on equity is broken down in this way, it is easy for management to determine what areas of the business need improvement to increase the firm’s return on equity.

References & Resources

Information may be abridged and therefore incomplete. This document/information does not constitute, and should not be considered a substitute for, legal or financial advice. Each financial situation is different, the advice provided is intended to be general. Please contact your financial or legal advisors for information specific to your situation.

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