5 Step DuPont Analysis for ROE Financial Statement Analysis

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The 3-step DuPont analysis is helpful in that it breaks ROE into 3 components. However, the 3-step DuPont doesn't fully isolate the effect of the firm's financing decisions because it measures profit margin as net income divided by sales. The 5-step DuPont analysis corrects for this by using operating margin instead of profit margin and separately measuring the interest burden and the tax burden. • The 5-step DuPont Analysis thus disaggregates return on equity (ROE) into 5 components: • ROE = [(operating margin * asset turnover) - interest burden] * equity multiplier * (1 - tax rate) • — • Edspira is the creation of Michael McLaughlin, an award-winning professor who went from teenage homelessness to a PhD. Edspira’s mission is to make a high-quality business education freely available to the world. • — • SUBSCRIBE FOR A FREE 53-PAGE GUIDE TO THE FINANCIAL STATEMENTS, PLUS: • • A 23-PAGE GUIDE TO MANAGERIAL ACCOUNTING • • A 44-PAGE GUIDE TO U.S. TAXATION • • A 75-PAGE GUIDE TO FINANCIAL STATEMENT ANALYSIS • • MANY MORE FREE PDF GUIDES AND SPREADSHEETS • http://eepurl.com/dIaa5z • — • SUPPORT EDSPIRA ON PATREON • * / prof_mclaughlin • — • GET CERTIFIED IN FINANCIAL STATEMENT ANALYSIS, IFRS 16, AND ASSET-LIABILITY MANAGEMENT • https://edspira.thinkific.com • — • LISTEN TO THE SCHEME PODCAST • Apple Podcasts: https://podcasts.apple.com/us/podcast... • Spotify: https://open.spotify.com/show/4WaNTqV... • Website: https://www.edspira.com/podcast-2/ • — • GET TAX TIPS ON TIKTOK • / prof_mclaughlin • — • ACCESS INDEX OF VIDEOS • https://www.edspira.com/index • — • CONNECT WITH EDSPIRA • Facebook: / edspira • Instagram: / edspiradotcom • LinkedIn: / edspira • — • CONNECT WITH MICHAEL • Twitter: / prof_mclaughlin • LinkedIn: / prof-michael-mclaughlin • — • ABOUT EDSPIRA AND ITS CREATOR • https://www.edspira.com/about/ • https://michaelmclaughlin.com

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