DuPont Analysis Calculator
Decompose ROE into what's actually driving it.
How DuPont analysis decomposes ROE
Return on equity (ROE) tells you how much profit a company generates for every dollar of shareholder equity — but on its own it doesn't say whether that return comes from strong margins, efficient use of assets, or simply high leverage. DuPont analysis splits ROE into those separate drivers, which is why two companies with identical ROE can look very different once you decompose them — one might be a highly profitable, low-leverage business, while the other achieves the same ROE mostly through debt.
The 3-factor decomposition is: ROE = Net Margin × Asset Turnover × Equity Multiplier. Using this calculator's defaults — $42M net income, $350M revenue, $480M total assets, and $220M equity — net margin is 12.0%, asset turnover is 0.73×, and the equity multiplier is 2.18×, giving an ROE of roughly 12.0% × 0.73 × 2.18 ≈ 19.1%. Each factor reveals something different: net margin reflects pricing and cost control, asset turnover reflects how efficiently assets generate revenue (see the Profitability Ratios calculator for related margin metrics), and the equity multiplier reflects how much leverage is amplifying shareholder returns.
The 3-Factor Model
ROE = Net Profit Margin × Asset Turnover × Equity Multiplier
Net Profit Margin = Net Income ÷ Revenue. This is the profitability driver: how much of every pound of revenue survives to become profit. Asset Turnover = Revenue ÷ Total Assets. This is the efficiency driver: how hard the asset base is working to generate sales. Equity Multiplier = Total Assets ÷ Shareholders' Equity. This is the leverage driver: how much of those assets are funded by debt rather than equity. Multiplying the three together algebraically simplifies to Net Income ÷ Equity = ROE.
The power of DuPont is that it lets you diagnose why ROE changed. If ROE fell 10 points from last year, was it because margins compressed (pricing or cost problem), asset turnover declined (capital tied up in slow-moving inventory or underperforming capex), or leverage fell (debt was repaid, shrinking the multiplier)? Each driver requires a different response.
The 5-Factor Model
ROE = Tax Burden × Interest Burden × Operating Margin × Asset Turnover × Equity Multiplier
The 5-factor model splits net profit margin into three components to isolate the impact of tax and interest costs: Tax Burden = Net Income ÷ Pre-tax Income (how much profit survives after tax — 1 minus the effective tax rate); Interest Burden = Pre-tax Income ÷ EBIT (how much EBIT survives after interest expense — a company with no debt has an interest burden of 1.0); Operating Margin = EBIT ÷ Revenue (pure operating profitability before financing and tax). This extended model is useful when comparing companies across different tax jurisdictions or with very different capital structures, since it shows exactly how much of the ROE difference is attributable to tax, interest, or operations.
Where to find the inputs
All inputs come from the two main financial statements. From the income statement: Revenue, EBIT (operating profit), pre-tax income, net income. From the balance sheet: Total assets, shareholders' equity. Use year-end figures or period averages for consistency. For a related view of the efficiency and leverage components, see the Efficiency Ratios and Solvency Ratios calculators.
Frequently asked questions
- What does DuPont analysis add over just looking at ROE?
- It breaks ROE into its drivers — is the company profitable, efficient with assets, or just leveraged? Two companies can have identical ROE for very different (and very different risk) reasons.
- When should I use the 5-factor version?
- When you want to separate the effect of taxes and interest expense from core operating performance — useful for comparing companies with different capital structures or tax situations. Supply EBIT and pretax income to unlock it.
- What is DuPont analysis?
- DuPont analysis is a framework, developed by the DuPont Corporation in the 1920s, that decomposes return on equity (ROE) into multiple components so you can see what is actually driving a company's profitability rather than looking at a single blended number.
- What does each of the three factors tell you?
- Net profit margin shows how much profit the company keeps from every dollar of revenue. Asset turnover shows how efficiently it uses its assets to generate sales. The equity multiplier shows how much financial leverage (debt) is amplifying returns to shareholders.
- What is a good ROE?
- In general, an ROE in the 15–20% range is considered strong for a mature company, but "good" varies significantly by industry — capital-light software businesses often post much higher ROE than capital-intensive utilities or industrials, so compare within the same sector.
- What is the difference between the 3-factor and 5-factor DuPont?
- The 3-factor version multiplies net profit margin × asset turnover × equity multiplier. The 5-factor version further splits net profit margin into tax burden × interest burden × operating margin, isolating the effects of taxes and interest expense from core operating performance.
- How do I use DuPont to identify a company's weakness?
- Compare each of the three (or five) factors against the company's own history and against peers. A falling net margin points to pricing or cost pressure; falling asset turnover points to underused assets or inventory buildup; a rising equity multiplier means more of the ROE is coming from leverage rather than operating performance.
- How does DuPont analysis relate to other profitability ratios?
- DuPont's net profit margin is the same net margin used on the Profitability Ratios calculator, and asset turnover is one of the Efficiency Ratios. DuPont is best thought of as a way of combining those individual ratios into a single decomposition of ROE.