Use of Modified Du Pont system to calculate ROE

Question

When ROE can be calculated in a simple way then why an analyst would use the Modified Du Pont system to calculate ROE. Explain.

Answer 1

a) In reality, an analyst does not use the equation of Modified Du Pont to calculate ROE for the motive stated above. But an analyst might use the Modified Du Pont equation to help in analyzing the causes that contribute to a firm's ROE.

b) In more simple words, analysts will use the Modified Du Pont system to dismantle ROE to see the factors which are influencing it.