DuPont Identity

The DuPont identity is an expression that shows a company's return on equity (ROE) can be represented as a product of three other ratios: the profit margin, the total asset turnover, and the equity multiplier. The formula for the DuPont identity is:ROE = profit margin x asset turnover x equity multiplier This formula, in turn, can be broken down further to:

ROE = (net income / sales) x (revenue / total assets) x (total assets / shareholder equity)

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