Understanding the Drivers of Return on Equity

DuPont analysis is a financial performance framework used to break down a company’s return on equity into key contributing components. It examines profitability, operational efficiency, and financial leverage to identify what drives overall returns. By separating net profit margin, asset turnover, and equity multiplier, this method provides deeper insight than a single ratio. Managers and analysts use it to pinpoint strengths and weaknesses in business operations and financing decisions. It is widely applied in performance evaluation, strategic planning, and comparative analysis across firms. The Algebra Group helps learners understand such analytical tools with clarity and practical relevance.