DuPont System

A system for analyzing a firm’s return on equity in which return on equity is broken down into three component pieces. The first is net income divided by net sales, which gives a net profit margin. The second is net sales divided by total assets, which indicates total asset turnover. The third is total assets divided by common equity, which indicates the financial leverage. Those calculations are multiplied against each other in order to come up with a firm’s return on equity according to the DuPont System.