Du Pont Identity Formula

Total Equity = Total capital


DuPont Identity is also referred to as DuPont analysis. It means that Return on Equity is dependent on 3 parts i.e Profit Margin (net income/sales), Total Assets turnover (Sales/Total Assets) and Equity Multiplier (Assets/Total Equity)

The Du Pont identity shows us that ROE is affected by three things:
  • Operating efficiency (as measured by profit margin)
  • Asset use efficiency (as measured by total assets turnover) 
  • Financial Leverage (as measured by equity multiplier)