The identity Donaldson Brown wrote in the 1920s still splits the same headline three ways.

DuPont is one number factored into three. Each lever earns ROE differently, and each one persists differently across a cycle. Read the levers, not the headline.

The identity . DuPont three-factor

ROE = Net Margin x Asset Turnover x Equity Multiplier

Net Margin = Net Income / Sales. Asset Turnover = Sales / Total Assets. Equity Multiplier = Total Assets / Equity. The same identity Donaldson Brown laid out at the chemicals company a hundred years ago. Penman 2013 extends it to a five-factor split that breaks operating ROA away from financial leverage. Three factors are enough to see what kind of 20 pct ROE you are looking at.

Archetype . the lever doing the work

Net Margin

Asset Turn

Equity Mult

ROE

The compounder FMCG . pricing power

15.0 pct

1.20 x

1.10 x

19.8 pct

The volume engine Asset-light retail

4.5 pct

3.20 x

1.40 x

20.2 pct

The leveraged play Capital-intensive industrial

5.0 pct

1.00 x

4.00 x

20.0 pct

Persistence . rolling 10Y std dev How fast the lever moves

~250 bps

~40 bps

~80 bps

slow / mid / fast

Leverage amplifies the cycle

A 4x equity multiplier in a flat year is fine. The same multiplier in a 20 pct revenue drop on the same operating base turns earnings down 40 pct.

Bad year

-40 pct

Earnings hit on a 20 pct revenue drop at 4x equity multiplier.

Good year

+40 pct

Earnings beat on a 20 pct revenue surprise at the same multiplier.

Cohort and archetype numbers illustrative for teaching, drawn from Nifty 200 trailing windows. ROE / Net Margin / Asset Turnover / Equity Multiplier defined as per Ind AS 1 and Schedule III standard line items. DuPont identity attributable to Donaldson Brown at E.I. du Pont de Nemours, 1920s. Penman 2013 "Financial Statement Analysis and Security Valuation" 5th ed ch 11. Nissim and Penman 2001 Review of Accounting Studies 6: 109 to 154. Past performance . backtest only . not a guarantee.