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The Three-Step DuPont Calculation
Taking the ROE equation: ROE = net income / shareholder's equity and multiplying the equation by (sales / sales), we get:
* ROE = (net income / sales) * (sales / shareholder's equity) We now have ROE broken into two components, the first is net profit margin, and the second is the equity turnover ratio. Now by multiplying in (assets / assets), we end up with the three-step DuPont identity:
* ROE = (net income / sales) * (sales / assets) * (assets / shareholder's equity) This equation for ROE, breaks it into three widely used and studied components:
* ROE = (Net profit margin)* (Asset Turnover) * (Equity multiplier) The Five-Step Calculation
Since the numerator of the net profit margin is net income, this can be made into earnings before taxes (EBT) by multiplying the three-step equation by 1 minus the company's tax rate:
* ROE = (earnings before tax / sales) * (sales / assets) * (assets / equity) * (1 - tax rate) We can break this down one more time, since earnings before taxes is simply earnings before interest and taxes (EBIT) minus the company's interest expense. So, if a substitution is made for the interest expense, we get:
* ROE = [(EBIT / sales) * (sales / assets) - (interest expense / assets)] * (assets / equity) * (1 - tax rate) The practicality of this breakdown is not as clear as the three-step, but this identity provides us with:
* ROE = [(operating profit margin) * (asset turnover) - (interest expense rate)] * (equity multiplier) * (tax retention rate)
What else can I help you with?
What has the author Du Pont de Nemours written?
Du Pont de Nemours has written: 'Du Pont'
What actors and actresses appeared in The Du Pont Story - 1950?
The cast of The Du Pont Story - 1950 includes: Art Baker as Chemical Director Whit Bissell as Dr. Wallace Carothers David Bruce as A young du Pont Nana Bryant as Elizabeth du Pont Sigrid Gurie as Sophie du Pont Stuart Holmes as Dr. Alexis du Pont Ted Jacques as Amory Askell Marcel Journet as Col. Louis de Toussand Douglas Kennedy as Coleman du Pont Charles Lane as Lammot du Pont James Millican as Alfred I. du Pont John Morgan as Francis C. du Pont Tom Neal as Alfred V. du Pont Peter Ortiz as Charles I. du Pont Vincent Pelletier as Narrator Marshall Reed as Hamilton Barksdale Grandon Rhodes as President Thomas Jefferson Keith Richards Stanley Ridges as Gen. Henry du Pont Edmon Ryan as Lammot du Pont - the elder Walter Sande as Tom Cooper Lyle Talbot as Eugene du Pont Pierre Watkin as Col. Henry du Pont
When was Pont du Carrousel created?
Pont du Carrousel was created in 1834.
When was Du Pont Motors created?
Du Pont Motors was created in 1919.
What is the population of Chef-du-Pont?
The population of Chef-du-Pont is 754.
When was Pont du Garigliano created?
Pont du Garigliano was created in 1966.
What is Pont-du-Château's population?
The population of Pont-du-Château is 10,102.
When was Ethel du Pont born?
Ethel du Pont was born in 1916.
When did Ethel du Pont die?
Ethel du Pont died in 1965.
When was Lammot du Pont I born?
Lammot du Pont I was born in 1831.
What is Pont-du-Navoy's population?
Pont-du-Navoy's population is 226.
When was Charles I. du Pont born?
Charles I. du Pont was born in 1797.
