What are the areas of a company performance/financial structure contributing to the 3 steps DuPont analysis of the ROE?

DuPont equation also known as the DuPont analysis, DuPont Model, DuPont formula or the DuPont method is a method for assessing a company's return on equity (ROE) by breaking it down into three parts. The name comes from the DuPont Corporation that started using this formula in the 1920s. 

This equation dissects the ROE to tell you how the company is achieving its ROE.

• Is the company increasing margins?
• Is the asset turnover adequate?
• Is leverage being used?

These are the three questions that the DuPont analysis can help you answer.

By referencing ROE alone, a company with a ROE of 20% could look like a fantastic opportunity, but when you take a deeper look, it could tell a completely different story.

Moreover, this analysis enables the analyst to compare different companies in similar industries or between industries.

The3 areas of financial structure  contributing to the3 step DuPont analysis are:

1-Operating efficiency ;measure in terms of profit margin

2-Asset turn over ;measure asset use efficiency

3-Financial leverage : measure equity towards assets(equity Multiplier)

ROE: (profit/ sales)*(sales/assets)*(assets/equity)

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