Investing
DuPont breakdown
Splits the ratio into profitability, efficiency and leverage so you can see which one is doing the work.
The Formula
ROE = margin x asset turnover x equity multiplier
Splits the ratio into profitability, efficiency and leverage so you can see which one is doing the work.
| Symbol | Meaning | Unit | Notes |
|---|---|---|---|
| margin | Profit margin | ratio | Net income divided by revenue. |
| turnover | Asset turnover | ratio | Revenue divided by total assets. |
| multiplier | Equity multiplier | ratio | Total assets divided by shareholders equity. |
What Each Symbol Means
marginratio
Profit margin
Net income divided by revenue.
turnoverratio
Asset turnover
Revenue divided by total assets.
multiplierratio
Equity multiplier
Total assets divided by shareholders equity.
See It Worked With Real Numbers
A formula on its own does not tell you which number goes where. The how to calculate return on equity page applies this equation to a concrete case, shows every intermediate step, and names the mistakes that produce a wrong answer even when the algebra is right.
Where This Formula Appears
This equation is the working core of How To Calculate Return On Equity, filed under Finance. Every number the guide produces comes from substituting into this one line.