DuPont: Find the Balance-Sheet Driver of ROE
Decompose ROE to identify leverage and asset-efficiency drivers.
Two companies both show 18% ROE. One improved margins; the other borrowed heavily and shrank equity through buybacks. DuPont analysis matters because a balance sheet is a dated snapshot of resources and claims, not a generic health score. The mechanism is ROE can rise from profitability, asset use, or leverage, and each source carries different durability and risk.. That mechanism explains why the same number can signal strength in one company and pressure in another. A larger asset balance may show capacity, but it may also show cash trapped in receivables or inventory. A larger liability balance may fund productive…
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