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← Return on Equity and Capital Allocation
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Question
What does the DuPont decomposition of ROE reveal that a single ROE figure does not?
1
How a company's ROE compares to its peers in the same industry
2
The three underlying drivers — profit margin, asset turnover, and financial leverage — showing how a company is generating its return and whether it is sustainable
3
The historical trend in ROE over multiple business cycles
4
Whether a company's ROE is high enough to justify its price-to-earnings ratio
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