The document discusses key financial ratios used to measure profitability and efficiency. Return on Equity (ROE) measures profitability by dividing net income by average shareholders' equity. ROE is impacted by the net margin, asset turnover ratio, and equity multiplier. The net margin measures profitability as a percentage of revenue. The asset turnover ratio measures efficiency in generating revenue from assets. The equity multiplier shows how assets are financed by equity or debt.

1. ROE = Net Income / Average Shareholders’ Equity
(Net Income / Revenue)
Measures the profitability of the
operations. This is the part of the profit
available to be distributed to the equity
holders or invested back into the
company.
(Revenue / Average Total Assets)
Measures the ability of the business to
generate revenue from the assets.
NET MARGIN
ASSET TURNOVER RATIO
FACTORS
IN
RETURN ON EQUITY (ROE)
(Average Total Assets / Average Shareholder’s
Equity)
Helps us understand how the assets of the
company are financed – with equity or debt.
The higher the Equity Multiplier, the higher the
RoE keeping all else fixed.
EQUITY MULTIPLIER
DuPont Analysis