DefinitionIntermediate
What are the three components that return on equity (ROE) can be expressed as, according to the expanded DuPont analysis?
Return on equity (ROE) can be expressed as three components according to the expanded DuPont analysis: profit margin, total asset turnover, and financial leverage (equity multiplier).
Key points
- ROE = Profit Margin × Total Asset Turnover × Equity Multiplier
- Profit margin measures operating efficiency.
- Total asset turnover assesses asset use efficiency.
- Financial leverage indicates the degree of debt financing.
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Fundamentals of Corporate Finance
ROSS
Thirteenth Edition · McGraw Hill LLC