DuPont Analysis

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DuPont Analysis

An alternative calculation of the return on equity of an investment. DuPont analysis utilizes the investment's gross book value instead of its net book value. It is calculated as:

(Profits / Sales) * (Sales / Assets) * (Assets / Equity) = DuPont Analysis return on equity

The theory behind DuPont analysis states that forms of return on equity using net book value discourage investment in new, potentially risky ventures because they underestimate the return for the first few years of the investment. The DuPont calculation attempts to remedy this situation.
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References in periodicals archive ?
Fret no more because the answer to the above-mentioned questions is called the DuPont Analysis, also known as DuPont Identity. This technique is a more granulated analysis of ROE using three financial ratios.