CTHE TRADITIONAL DU PONT EQUATION IS RETURN ON EQUITY (ROE) = (EAR...

The Traditional Du Pont equation is Return on Equity (ROE) = (Earnings after Taxes (EAT) / Sales) *

(Sales / Assets) * (Assets / Equity) where EAT / Sales is the net profit margin, Sales / Assets is asset

turnover and Assets / Equity is the equity multiplier. As of December 31, 2000, the formula showed (8/100) *

(100/100) * 100/35) = (0.08) * (1.0) * (2.9) = 0.23 = ROE.

As of December 31, 2001, the formula showed: (13/150) * (150/118) * (118/40) = (0.087) * (1.27) * (2.95) =

0.325 = ROE.

The Sales/Asset ratio is 1.27 in 2001 but only 1.0 in 2000. This 27 percent increase in the asset turnover

ratio is the component that most contributes to the increase in ROE.