2011-01-19

DuPont Analysis

Via a Motley Fool article, I read about the DuPont identity, a formula that describes the elements of return on equity (ROE):

ROE = ( net profit / sales ) x ( sales / assets ) x ( assets / equity )

Put another way, the rate of return to stockholders is the profit margin times asset turnover times leverage, which makes intuitive sense.

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