DuPont analysis

A DuPont explosives salesman, Donaldson Brown, submitted an internal efficiency report to his superiors in 1912 that contained the formula.

The DuPont analysis is less useful for industries such as investment banking, in which the underlying elements are not meaningful (see related discussion: Valuation (finance) § Valuing financial services firms).

Certain types of retail operations, particularly stores, may have very low profit margins on sales, and relatively moderate leverage.

The ROE of such firms may be particularly dependent on performance of this metric, and hence asset turnover may be studied extremely carefully for signs of under-, or, over-performance.

DuPont analysis enables third parties that rely primarily on their financial statements to compare leverage among similar companies.