DuPont Analysis

The three-step DuPont identity is:

ROE = (Net profit / Sales) × (Sales / Total assets) × (Total assets / Equity)

That is, ROE = Net profit margin × Asset turnover × Equity multiplier. The first two terms together equal ROA, so ROE = ROA × Equity multiplier.

The analysis shows whether a high ROE comes from strong margins, efficient use of assets or simply high leverage. Two banks with the same ROE can be very different: one may have a high ROA and moderate leverage, the other a low ROA boosted by thin capital.

An extended five-step version further splits net profit margin into a tax burden (net profit / profit before tax), an interest burden (profit before tax / EBIT) and an operating margin (EBIT / sales).

For banks, revenue is total income, and the equity multiplier is typically high because deposits finance most assets, which is why supervisors watch capital adequacy and leverage ratios alongside ROE.

तीन चरणको डुपोन्ट समीकरण:

ROE = (खुद नाफा / बिक्री) × (बिक्री / कुल सम्पत्ति) × (कुल सम्पत्ति / स्वपुँजी)

अर्थात् ROE = खुद नाफा मार्जिन × सम्पत्ति आवर्तन × स्वपुँजी गुणक; पहिलो दुई मिलेर ROA हुन्छ। यसले उच्च ROE बलियो मार्जिन, दक्ष सम्पत्ति उपयोग वा उच्च लिभरेजमध्ये केबाट आयो भन्ने देखाउँछ। पाँच चरणको संस्करणमा कर भार, ब्याज भार र सञ्चालन मार्जिन पनि छुट्याइन्छ। बैंकमा निक्षेपले अधिकांश सम्पत्ति वित्तपोषण गर्ने भएकाले स्वपुँजी गुणक उच्च हुन्छ।