π¬ DuPont Analysis Calculator
Decompose ROE into its three drivers.
Return on equity (DuPont)
Estimates for planning only, not financial advice.
DuPont analysis splits return on equity into three multiplicative drivers: profit margin times asset turnover times financial leverage. With $420,000 of net income on $3.2 million of revenue, $2.1 million of assets, and $950,000 of equity, the pieces are a 13.13 percent margin, 1.52x turnover, and a 2.21x equity multiplier, multiplying to 44.21 percent ROE. The decomposition reveals the strategy: this company earns its ROE through profitability and leverage more than through asset efficiency.
How to Use This Calculator
Enter net income, revenue, average total assets, and average shareholders equity. The calculator computes each DuPont component and multiplies them into ROE, then names the biggest driver so you know where the return comes from.
Enter net income and revenue from the income statement for the margin.
Enter average total assets and average equity, averaging beginning and ending balances, for turnover and leverage.
Read the three components and the driver ranking. Compare each against industry medians, not just the headline ROE.
The Three-Step Formula
The algebra is an identity: revenue and assets cancel, leaving net income over equity. Its power is diagnostic. Two companies with identical 20 percent ROE can be entirely different businesses: one a high-margin luxury brand, the other a thin-margin retailer juiced with leverage. The formula, developed by DuPont's finance team in the 1920s, remains the standard lens a century later.
Worked Example
Net income $420,000, revenue $3,200,000, average assets $2,100,000, average equity $950,000. Margin = 420,000 / 3,200,000 = 13.13 percent. Turnover = 3,200,000 / 2,100,000 = 1.52x. Multiplier = 2,100,000 / 950,000 = 2.21x. ROE = 0.1313 x 1.52 x 2.21 = 44.21 percent. The driver ranking shows profitability and leverage doing the heavy lifting; asset turnover is the laggard, which tells management exactly where improvement would move ROE most.
Reading the Drivers
| High driver | Business model | Risk |
|---|---|---|
| Margin | Premium pricing, cost control | Competition eroding prices |
| Turnover | Volume, efficiency, retail | Needs constant reinvestment |
| Leverage | Debt-funded returns | Fragile in downturns |
The Five-Step Extension
The five-step DuPont splits the margin further into tax burden, interest burden, and operating margin: ROE = (net income / EBT) x (EBT / EBIT) x (EBIT / revenue) x turnover x multiplier. This isolates whether taxes or interest are dragging the return. A company whose three-step ROE looks fine but whose interest burden is deteriorating is heading for trouble the simple version cannot see. Use five steps when leverage is material; three steps suffice otherwise.
Common Mistakes
Using year-end instead of average balances distorts turnover and leverage for growing companies. Celebrating a leverage-driven ROE without checking interest coverage mistakes fragility for skill. And comparing components across industries misleads: grocers will always win on turnover and lose on margin versus software. Benchmark within the industry with our debt to equity calculator for the leverage leg, our margin calculator for profitability, and our ROI calculator for the overall return picture.
DuPont Archetypes Across Industries
Industries settle into recognizable DuPont fingerprints. Luxury goods show high margins, modest turnover, and low leverage: the return comes from pricing power. Grocery and discount retail show razor-thin margins, very high turnover, and moderate leverage: the return comes from velocity. Banks show thin margins, low turnover, and extreme leverage: the return comes from the balance sheet itself. Each archetype is a viable strategy; problems start when a company drifts from its archetype without a plan.
The drift to watch is margin businesses adding leverage to mask fading pricing power. A consumer brand whose margin slides from 18 to 12 percent while its equity multiplier climbs from 1.5 to 2.5 is not maintaining ROE; it is replacing quality return with fragile return. The DuPont decomposition makes the substitution visible in a way the headline ROE never will, which is precisely why analysts run it.
Turnover deserves more respect than it gets. Improving asset turnover from 1.2x to 1.5x lifts ROE as surely as a margin gain, but it requires operational excellence rather than pricing courage: tighter inventory, faster collections, better asset utilization. Companies that master turnover compound quietly for decades, while margin stories make headlines and leverage stories end in restructuring.
DuPont for Personal Investing Decisions
Individual investors can run DuPont on any public company in minutes from the annual report, and it beats screening on ROE alone. Two stocks both showing 18 percent ROE deserve different prices when one earns it through 25 percent margins and the other through 3x leverage. The margin compounder deserves the premium multiple; the leveraged one deserves a discount for fragility. The decomposition turns a single screening number into an investment thesis.
Track the components over five years rather than one. A margin drifting down while leverage drifts up is the classic quality fade, and it often precedes dividend cuts and multiple compression by a year or two. Catching the fade in the DuPont components is catching it early, which is the only time catching it is profitable.
Estimates for planning only, not financial advice.
Frequently Asked Questions
What is DuPont analysis?
A method that breaks return on equity into profit margin, asset turnover, and financial leverage. It shows whether ROE comes from profitability, efficiency, or borrowing.
What is the DuPont formula?
ROE = (net income / revenue) x (revenue / average assets) x (average assets / average equity). The three terms are net margin, asset turnover, and the equity multiplier.
How do you calculate DuPont ROE?
Compute each component and multiply. With a 13.13 percent margin, 1.52x turnover, and 2.21x multiplier, ROE is 44.21 percent.
What is the five-step DuPont model?
It splits the margin into tax burden (NI/EBT), interest burden (EBT/EBIT), and EBIT margin, giving five drivers total. It isolates tax and interest effects the three-step version hides.
Which DuPont driver matters most?
It depends on the company. Margin-driven ROE reflects pricing power; turnover-driven reflects efficiency; leverage-driven reflects borrowing. Margin and turnover are higher quality than leverage.
Can DuPont analysis be gamed?
The components are accounting identities, so they cannot be faked, but leverage-driven ROE can mask weak operations. Always read the drivers, not just the headline ROE.
Why use average assets and equity?
Because income is earned over the whole period while balance sheets are snapshots. Averaging matches the flow with the stock; year-end figures distort growing companies.
What is a good ROE in DuPont terms?
Fifteen to 20 percent sustainably is excellent for most industries. Above that, check whether leverage or one-off gains are doing the work.
How does DuPont relate to ROA?
ROA is margin times turnover, the first two DuPont terms. ROE is ROA times the equity multiplier. DuPont simply extends ROA with the leverage leg.
Who invented DuPont analysis?
The finance department at DuPont in the 1920s, built to evaluate the performance of its business units. It remains a standard tool in financial statement analysis a century later.