Widely read:
ROE (return on equity) is one of the most important and common ratios used to analyse a company. And why not? We all want to see how much of the income is attributable to shareholders, who own the equity. However, just dividing net income by shareholders' equity can only tell you so much. In the 1920s, the DuPont Corporation developed a formula which broke ROE into three components: profit margin, asset turnover and financial leverage. This helps us understand the reason behind the increase or decrease in ROE. Here is the DuPont equation:
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