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# What Is Du Pont Analysis? ## Definition of Du Pont Analysis

• The Du Pont analysis was created by the Du Pont corporation and is similar to the Return on Equity (ROE) but more accurate.
• The Du Pont analysis is known to decompose the drivers of ROE.
• The Du Pont analysis helps you understand the strengths and weaknesses of a company.

## What is the Formula for Du Pont Analysis?

• The formula for the Du Pont is the Net Profit Margin multiplied by the Asset Turnover and Equity Multiplier.

Net Profit Margin x AT x EM

(Where AT = asset turnover and EM = equity multiplier)

• The Net Profit Margin can be calculated by dividing the Net Income by the Revenue.

Net Income ÷ Revenue

• The AT can be calculated by dividing the Sales by the Average Total Assets.

Sales ÷ Average Total Assets

• The EM can be calculated by dividing the Average Total Assets by the Average Total Shareholder’s Equity.

Average Total Assets ÷ Average Total Shareholder’s Equity

## Du Pont Analysis in Practice

• Joe’s Pizzeria has a net profit margin of 25%. The asset turnover for the pizzeria 0.3 and the financial leverage multiplier is 0.4. What is the ROE based on the Du Pont Analysis?
• 0.25 x 0.3 x 0.4 = 0.03
• 0.03 x 100 = 3%
• Therefore the ROE based on the Du Pont Analysis is 3%.