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📝 What is DuPont Analysis?
💡 What is DuPont Analysis?
Imagine Bunty runs a shoe shop 👟.
He wants to know:
👉 Is his business truly profitable?
👉 Is he using his money well?
👉 Is the shop running efficiently?
DuPont Analysis helps to break this big question into 3 small, simple parts! 🎯
🎯 What is DuPont Analysis?
👉 DuPont Analysis = Break down of Return on Equity (ROE) into 3 pieces! 🔍
✔️ ROE (Return on Equity) = "How much profit Bunty made using his own money (equity)?" 💰
But where is this profit coming from? Hmm... 🤔
✅ From good sales?
✅ From big profit on each sale?
✅ From using less money to run business?
👉 DuPont breaks ROE into 3 easy things to see the truth!
🎨 The 3 Magic Parts of DuPont:
1️⃣ Net Profit Margin (Profitability) 💸
👉 How much profit from each ₹100 sale?
✔️ If this is HIGH = Bunty earns well from every shoe sold! 👟✅
2️⃣ Asset Turnover (Efficiency) 🔄
👉 How well is Bunty using his shop’s things (machines, racks, stock) to make sales?
✔️ If HIGH = He is using his shop smartly, not letting stock gather dust! 👞🚀
3️⃣ Equity Multiplier (Leverage) 🏦
👉 How much of the business is run by loans vs own money?
✔️ If HIGH = More borrowed money, risky but may boost profits! ⚠️
🎯 The DuPont Formula (In Fun Words):
ROE = Net Profit Margin × Asset Turnover × Equity Multiplier
✔️ Profitability × Efficiency × Leverage = Final Return on Equity
👉 If any 1 of these is LOW — the total ROE suffers 😟.
👉 If all 3 are GOOD — ROE becomes super strong! 💪💰
🎨 Funny Example:
Bunty sells ₹1,00,000 shoes:
✔️ His Profit Margin is 10% — earns ₹10,000 profit 💸
✔️ His Asset Turnover is 2 — earns ₹2 for every ₹1 in shop! 🔄
✔️ His Equity Multiplier is 1.5 — partly using bank loan 🏦
👉 ROE = 10% × 2 × 1.5 = 30%
🎯 Means: For every ₹100 of Bunty’s own money, he earns ₹30 profit! 🎉
🤔 Why DuPont is Important?
✔️ Breaks big profit numbers into 3 small parts to understand what’s good and what’s bad! 👓
✔️ Investors see:
✅ Is the profit because of real sales?
✅ Is the company borrowing too much?
✅ Is the business working efficiently?
⚠️ When to Worry?
❌ Low Net Margin? — Products not profitable! 😰
❌ Low Asset Turnover? — Machines or stock lying unused! 😞
❌ High Leverage? — Too much loan, risky if profits fall! 🚨
🎈 Funny Tip:
✔️ DuPont is like checking your salary savings:
✅ Do you earn enough salary? 💼
✅ Do you use your money wisely or waste it? 💳
✅ Do you depend too much on credit cards? 🏦
✔️ If all 3 are good — your savings (ROE) shine! 🌟
🔑 In a Nutshell:
✔️ DuPont Analysis = Profit Margin × Efficiency × Leverage
✔️ Helps see WHY a company is doing well or badly.
✔️ Great tool for serious investors to know the truth behind numbers! 💡
💡 “Strong companies don’t just make profits — they do it efficiently, smartly, and safely. That’s what DuPont shows!” 🚀💰