Dupont Decomposition,”ROE = (Profit margin)(Equity multiplier) = (Net profit/Sales)(Assets/Equity) = (Net Profit/Equity)• Profitability (measured by profit margin)• Asset Use efficiency (measured by asset turnover)• Financial leverage (measured by equity multiplier)The DuPont equation (i.e.
ROE = net margin x total asset turnover x leverage multiplier) helps identify how the firm generates ROE. Dividend payout is not included in the DuPont decomposition.”