Editing DuPont analysis (section)

==ROA and ROE ratio==
The '''return on assets (ROA) ratio''' developed by DuPont for its own use is now used by many firms to evaluate how effectively assets are used. It measures the combined effects of profit margins and asset turnover.<ref>{{cite book |last = Groppelli |first = Angelico A. |author2=Ehsan Nikbakht |title = Finance, 4th ed |publisher = Barron's Educational Series, Inc. |date = 2000 |pages = 444–445 |isbn = 0-7641-1275-9 }}</ref>

:<math>\text{ROA} = \frac{\text{Net Income}}{\text{Revenue}} \times \frac{\text{Revenue}}{\text{Average Total Assets}} = \frac{\text{Net income}}{\text{Average Total Assets}}</math>

The '''return on equity (ROE) ratio''' is a measure of the rate of return to stockholders.<ref>{{cite book |last = Groppelli |first = Angelico A. |author2=Ehsan Nikbakht |title = Finance, 4th ed |publisher = Barron's Educational Series, Inc. |date = 2000 |isbn = 0-7641-1275-9 |page = 444 }}</ref> Decomposing the ROE into various factors influencing company performance is often called the '''DuPont system'''.<ref>{{cite book |last = Bodie |first = Zane |author2=Alex Kane |author3=Alan J. Marcus |title = Essentials of Investments, 5th ed |publisher = McGraw-Hill Irwin |date = 2004 |pages = 458–459 |isbn = 0-07-251077-3 }}</ref>

:<math>\text{ROE} = \frac{\text{Net Income}}{\text{Average Total Equity}} = \frac{\text{Net Income}}{\text{Pretax Income}} \times \frac{\text{Pretax Income}}{\text{EBIT}} \times \frac{\text{EBIT}}{\text{Revenue}} \times \frac{\text{Revenue}}{\text{Average Total Assets}} \times \frac{\text{Average Total Assets}}{\text{Average Total Equity}} </math>
:Where
:* Net Income = pre-tax income after taxes
:* Equity = shareholders' equity
:* EBIT = [[Earnings before interest and taxes]]
:* Pretax Income is often reported as Earnings Before Taxes or EBT
This decomposition presents various ratios used in [[fundamental analysis]]. 
* The company's [[tax]] burden is (Net income ÷ Pretax profit). This is the proportion of the company's profits retained after paying income taxes. [NI/EBT]
* The company's interest burden is (Pretax income ÷ EBIT). This will be 1.00 for a firm with no [[debt]] or financial leverage. [EBT/EBIT]
* The company's '''operating income margin''' or [[return on sales]] (ROS) is (EBIT ÷ Revenue). This is the operating income per dollar of sales. [EBIT/Revenue]
* The company's [[asset turnover]] (ATO) is (Revenue ÷ Average Total Assets). 
* The company's '''equity multiplier''' is (Average Total Assets ÷ Average Total Equity). This is a measure of financial leverage.