DEFINITION of 'DuPont Identity'
An expression that breaks return on equity (ROE) down into three parts: profit margin, total asset turnover and financial leverage. It is also known as "DuPont Analysis".
DuPont identity tells us that ROE is affected by three things: Operating efficiency, which is measured by profit margin Asset use efficiency, which is measured by total asset turnover Financial leverage, which is measured by the equity multiplier
ROE = Profit Margin (Profit/Sales) * Total Asset Turnover (Sales/Assets) * Equity Multiplier (Assets/Equity)
INVESTOPEDIA EXPLAINS 'DuPont Identity'
If ROE is unsatisfactory, the Du Pont identity helps locate the part of the business that is underperforming.
Here is how the DuPont identity is derived:
ROE = NI/TEMultiply by 1 (TA/TA) and then rearrangeROE = (NI / TE) (TA / TA)ROE = (NI / TA) (TA / TE) = ROA * EMMultiply by 1(S/S) and then rearrangeROE = (NI / TA) (TA / TE) (S/S)ROE = (NI / S) (S / TA) (TA / TE)ROE = PM * TAT * EMROE = Profit Margin * Total Asset Turnover * Equity Multiplier
When:ROE = Return on EquityNI = Net IncomeTE = Total EquityTA = AssetsROA = Return on AssetsEM = TA/TE = 1 + D/E = The Equity MultiplierS = Sales
Learn more about the DuPont analysis by reading What are the main differences between return on equity (ROE) and return on assets (ROA)?

Return On Equity  ROE
The amount of net income returned as a percentage of shareholders ... 
Equity Multiplier
The ratio of a company’s total assets to its stockholder’s equity. ... 
Asset Turnover Ratio
The amount of sales generated for every dollar's worth of assets. ... 
Leverage
1. The use of various financial instruments or borrowed capital, ... 
Profit Margin
A ratio of profitability calculated as net income divided by ... 
Asset
1. A resource with economic value that an individual, corporation ...

Fundamental Analysis
Ratio Analysis Tutorial
If you don't know how to evaluate a company's present performance and its possible future performance, you need to learn how to analyze ratios. 
Fundamental Analysis
Decoding DuPont Analysis
Get a deeper understanding of ROE with these threestep and fivestep calculations. 
Markets
A Look At Corporate Profit Margins
Take a deeper look at a company's profitability with the help of profit margin ratios. 
Economics
How Return On Equity Can Help You Find Profitable Stocks
It pays to invest in companies that generate profits more efficiently than their rivals. This is where ROE comes in. 
Markets
Earnings Power Drives Stocks
Internal return on investment helps determine a stock's ability to propel shareholder returns. 
Fundamental Analysis
What is the difference between profitability and profit?
Calculating company profit and profitability are not one and the same, and investors should understand the difference between the two terms. 
Fundamental Analysis
What's a Prospectus?
The Security and Exchange Commission (SEC) requires that any company raising money from potential investors through the sale of securities must file a prospectus with the SEC and then provide ... 
Trading Strategies
5 Ways To Adapt To Tough Markets
Tough markets undermine profitability and lower selfconfidence. Fight back with five simple but powerful rules of engagement. 
Fundamental Analysis
Equity Multiplier
The equity multiplier is a straightforward ratio used to measure a company’s financial leverage. The ratio is calculated by dividing total assets by total equity. 
Fundamental Analysis
What are some examples of return on investment capital?
Read about some basic examples of return on investment capital for publicly traded companies and companies that have a handful of investors.