![]() This model was created to help remove some of the uncertainty when it came to a company’s actual performance. It decomposes return on equity to reveal a more nuanced understanding of what’s driving change(s) behind a company’s return on equity. The DuPont analysis expands on the simple ROE formula. The “DuPont” name originates from the DuPont Corporation, which created the model in the 1920s. The DuPont model, also known as the DuPont equation or the DuPont framework, provides a thorough analysis of the key metrics affecting a company's return on equity. There are two versions of the DuPont framework: 3-step and 5-step.īy using the DuPont model, a business can better identify its strengths and areas of opportunity.ĭuPont analysis is a multistep financial equation that offers insight into a business's fundamental performance. The DuPont analysis decomposes the ROE formula to provide a clearer picture of a company’s performance. In this article, we explore the DuPont analysis model, including the formula and each of its components, plus we review examples of each, compare the DuPont model to simple ROE and answer a few frequently asked questions about the framework. If you aspire to work in accounting or the finance industry, being familiar with this analysis model and how it can help a business and its decision-making might prove useful when applying for competitive roles. Investors, financial advisers and financial managers often use the DuPont analysis framework to gather insight into a company's capital structure and the factors contributing to its return on equity breakdown.
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