The DuPont Equation, ROE, ROA, and Growth

The DuPont equation is an expression which breaks return on equity down into three parts: profit margin, asset turnover, and leverage.

Return on equity measures the rate of return on the ownership interest of a business and is irrelevant if earnings are not reinvested or distributed.

Sustainable-- as opposed to internal-- growth gives a company a better idea of its growth rate while keeping in line with financial policy.

The dividend payout and retention ratios offer insight into how much of a firm's profit is distributed to shareholders versus retained.

Return on assets is a component of return on equity, both of which can be used to calculate a company's rate of growth.