The Du Pont equation, enables the financial analyst to evaluate the interaction of basic profitability, the efficient use of resources, and the degree to which the company uses debt financing.

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The Du Pont equation is a financial analysis tool that breaks down return on equity (ROE) into three components: profitability (represented by net income margin), efficiency (represented by asset turnover), and financial leverage (represented by the equity multiplier). Therefore, it enables the financial analyst to evaluate the interaction of basic profitability, the efficient use of resources, and the degree to which the company uses debt financing.

The Du Pont Equation, Enables the Financial Analyst to Evaluate