Which analysis calculates returns on equity using net income, sales, assets, and equity?

Dupont Analysis is a financial performance evaluation method that takes into account net income, sales, assets, and equity to assess a company's return on equity (ROE). This analysis breaks down ROE into its components, demonstrating how effectively a company is utilizing its equity to generate profits. The formula used in Dupont Analysis is:

ROE = (Net Income / Equity)

However, it further decomposes net income in relation to sales and assets, which allows analysts to understand the contributions of operating efficiency (net income/sales), asset use efficiency (sales/assets), and financial leverage (assets/equity) to the overall return on equity. By providing a more detailed view of what drives the ROE, Dupont Analysis underscores the interconnectedness of net income, sales, assets, and equity, making it a comprehensive tool for financial analysis.

In contrast, Horizontal Analysis focuses on evaluating financial data over a period to identify trends and growth, while Vertical Analysis assesses individual components of financial statements as a percentage of a total figure at a specific point in time. The Comps Method compares a company's valuation metrics to those of similar businesses within the industry, without directly calculating ROE or its components. Therefore, Dupont Analysis is specifically tailored for calculating returns on equity