DuPont analysis (also known as the DuPont identity, DuPont equation, DuPont framework, DuPont model, DuPont method or DuPont system) is a tool used in financial analysis, where return on equity (ROE) is separated into its component parts.
Useful in several contexts, this "decomposition" of ROE allows financial managers to focus on the key metrics of financial performance individually, and thereby to identify strengths and weaknesses within the company that should be addressed.[1] Similarly, it allows investors to compare the operational efficiency of two comparable firms.[1]
The name derives from the DuPont company, which began using this formula in the 1920s. A DuPont explosives salesman, Donaldson Brown, submitted an internal efficiency report to his superiors in 1912 that contained the formula.[2]
- ^ a b Marshall Hargrave (2022). Dupont Analysis, Investopedia.
- ^ Phillips, Matt (9 December 2015). "The DuPont invention that changed how things work in the corporate world". Quartz (publication). Retrieved 9 December 2015.