Separate margin, turnover, and leverage

Do not let one return number hide three different stories. DuPont analysis turns a blended return into operational, asset, and financing drivers. Profit margin This is the P&L driver. It reflects price, mix, direct costs, opex discipline, and tax or interest effects depending on the version used. Asset turnover This is the utilization driver. It asks whether inventory, receivables, equipment, stores, or other assets are producing enough sales. Equity multiplier This is the leverage driver. It can amplify returns, but it also changes risk. A P&L owner should avoid claiming an operating victory that came mainly from capital structure.

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