Ratio analysis
DuPont analysis
Split ROE into margin, asset turnover and leverage to see what really changed.
18 minintermediateMembers
Learning objectives
- Decompose ROE into net margin × asset turnover × equity multiplier
- Explain which driver caused a change in ROE
- Recognise an ROE rise driven by leverage rather than operations
Rawdah's ROE fell from 23.3% to 20.2% between FY2024 and FY2025. Was it lower profitability, less productive assets, or less leverage? DuPont analysis answers that by splitting ROE into three ratios that multiply back to it. The decomposition matters because the same ROE can come from very different businesses — a high-margin jeweller, a high-turnover grocer, or a thinly capitalised company riding on debt.
ROE = (NI ÷ Revenue) × (Revenue ÷ avg TA) × (avg TA ÷ avg Equity)
- NI ÷ Revenue
- net margin — profitability
- Revenue ÷ avg TA
- asset turnover — efficiency
- avg TA ÷ avg Equity
- equity multiplier — financial leverage
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