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𝐃𝐮𝐏𝐨𝐧𝐭 𝐀𝐧𝐚𝐥𝐲𝐬𝐢𝐬 𝐅𝐨𝐫 𝐂𝐨𝐦𝐩𝐚𝐧𝐢𝐞𝐬: 𝐔𝐧𝐯𝐞𝐢𝐥𝐢𝐧𝐠 𝐭𝐡𝐞 𝐋𝐚𝐲𝐞𝐫𝐬 𝐨𝐟 𝐑𝐞𝐭𝐮𝐫𝐧 𝐨𝐧 𝐄𝐪𝐮𝐢𝐭𝐲 (𝐑𝐎𝐄) DuPont analysis provides a comprehensive framework to dissect ROE into its fundamental components, revealing what drives profitability for Canadian companies. Let’s talk about it! 🌠1. Profit Margin Profit Margin = Net Income / Revenue This ratio measures how effectively a company converts revenue into profit. It indicates the percentage of each dollar of revenue that translates into net income. 🌠2. Asset Turnover Asset Turnover = Revenue / Average Total Assets Asset turnover evaluates how efficiently a company utilizes its assets to generate revenue. A higher asset turnover ratio indicates better efficiency in asset utilization. 🌠3. Financial Leverage Financial Leverage = Average Total Assets / Average Shareholders' Equity Financial leverage assesses the extent to which a company uses debt to finance its operations and assets. It reflects the ratio of total assets to shareholders' equity, highlighting the impact of debt on equity returns. 🌠Understanding ROE Through DuPont Analysis ROE = Profit Margin * Asset Turnover * Financial Leverage DuPont analysis enables investors, analysts, and managers to delve deeper into ROE by isolating and examining each component. So stakeholders can identify the specific drivers of a company’s profitability and assess its operational efficiency, financial strategy, and overall performance.