The DuPont Identity And Equity Multiplier

As you know, the DuPont Identity decomposes ROE into the profit margin, total asset turnover, and equity multiplier. To see how these factors can impact ROE, consider Goldman Sachs. Although the main topic of this article is pay on Wall Street and in professional baseball, partway through, it discusses the equity multiplier (called the leverage ratio in the article) for Goldman Sachs. During the credit bubble period, probably 2005 to 2008, Goldman's equity multiplier exceeded 25 and the company's ROE was above 30 percent. Now, Goldman's equity multiplier has dropped to about 12 and the ROE has dropped to the low teens.