And that’s a wrap!
Next time you analyze a stock, don’t stop at ROE.
Break it down with DuPont and dig deeper.
Retweet to help fellow investors decode the real story behind ROE!
Posted On:19 May 2025
5️⃣3rd Driver: Equity Multiplier (Leverage)
Equity Multiplier = Total Assets / Shareholders’ Equity
This shows how much of the company’s assets are financed by equity vs debt
High leverage?
→ Can boost ROE
→ But also increases financial risk
Know when leverage is a strategy https://t.co/lGGWZEiqA7
Posted On:19 May 2025
7️⃣Example: Two companies with 20% ROE
🏢Company A
• Profit Margin: 20%
• Asset Turnover: 0.2x
• Leverage: 5x
🏢Company B
• Profit Margin: 15%
• Asset Turnover: 1.1x
• Leverage: 1.2x
Same ROE, but B earns it through efficiency, not debt
Co. B is more sustainable, Co. A
Posted On:19 May 2025
8️⃣How to Use DuPont in Your Stock Research
→ Spot operational strengths (or weaknesses)
→ See if management is efficient
→ Understand how much debt is powering the returns
→ Identify whether ROE is sustainable or a ticking time bomb
It’s clarity in a single formula
Posted On:19 May 2025
6️⃣Here’s the Full DuPont Formula:
ROE = (Net Profit / Revenue) × (Revenue / Assets) × (Assets / Equity)
This 3-part breakdown shows you:
→ If ROE is high because of good business
OR
→ If it’s artificially inflated by debt
And that is the insight most investors miss
Posted On:19 May 2025
Disclaimer: This thread is for educational purposes only
Always do your own research before investing
Posted On:19 May 2025
9️⃣In Short: Shareholders Care About This
ROE tells them how much value their equity is creating.
But DuPont tells them how that value is created.
And in investing, understanding the “how” separates great investors from average ones
