Dupont

The DuPont framework

The DuPont framework, developed by the DuPont Corporation in the 1910s, decomposes Return on Equity (ROE) into its constituent drivers so that analysts can identify *why* ROE is high or low — and whether that is driven by profitability, asset efficiency, or financial leverage.

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3-Factor (classic)

ROE= Net Profit Margin × Asset Turnover × Equity Multiplier The 3-factor model breaks ROE down into three components: profitability (net profit margin),efficiency (asset turnover), and leverage (equity multiplier).

5-Factor (Hagstrom / extended)

ROE = Tax Burden × Interest Burden × EBIT Margin × Asset Turnover × Equity Multiplier

The 5-factor model separates the tax effect and the interest/leverage effectfrom operating profitability, giving a more granular picture of where value is created or destroyed.

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