What Is the DuPont Analysis?

The DuPont analysis (also known as the DuPont identity or DuPont model) is a framework for assessing basic performance pioneered by DuPont. DuPont analysis is a strategy for dissecting the many determinants of return on equity (ROE). The breakdown of ROE allows investors to focus on specific important financial performance measures to discover strengths and weaknesses.

Dupont analysis is a method to analyse the factors contributing to the increase or decrease in return on equity of a company. It also helps to analyse a company’s ability to increase its return on equity, thereby increasing return for its investors. This model uses elements of both balance sheets and profit and loss accounts to analyse the reasons behind rising ROE. ROE of a company can be divided into 3 components, Which are

  • Net profit margin

  • Asset turnover ratio

  • Equity multiplier or leverage