DuPont Analysis Calculator — Decompose ROE
Break down Return on Equity into profit margin, asset turnover, and equity multiplier using DuPont analysis.
What Is DuPont Analysis?
DuPont Analysis is a way to break down a company’s Return on Equity (ROE) into three separate parts, so you can see where the profitability is actually coming from.
It was developed at the DuPont Corporation in the 1920s and is still one of the most used frameworks in financial analysis today.
Think of it like this: if a restaurant has great profits, DuPont Analysis tells you whether it is because they charge high prices (profit margin), serve lots of customers (asset turnover), or borrowed heavily to expand (leverage).
The DuPont Formula
ROE = Profit Margin × Asset Turnover × Equity Multiplier
Which expands to:
ROE = (Net Income / Revenue) × (Revenue / Total Assets) × (Total Assets / Shareholders' Equity)
Notice that Revenue cancels out between the first two terms, and Total Assets cancels between the last two. The final result simplifies to Net Income / Shareholders’ Equity — which is the standard ROE formula. But by breaking it into three parts, you learn much more.
The Three Components Explained
| Component | Formula | What It Tells You | Analogy |
|---|---|---|---|
| Profit Margin | Net Income / Revenue | How much profit the company keeps from each dollar of sales | If you sell lemonade for $1 and keep $0.10 after costs, your profit margin is 10% |
| Asset Turnover | Revenue / Total Assets | How efficiently the company uses its assets to generate sales | A food truck (small assets, high sales) has higher turnover than a luxury hotel |
| Equity Multiplier | Total Assets / Shareholders’ Equity | How much the company relies on debt (leverage) | If you buy a $300,000 house with $60,000 down, your equity multiplier is 5× |
Worked Example
Suppose a company has:
- Net Income: $50,000
- Revenue: $500,000
- Total Assets: $400,000
- Shareholders’ Equity: $200,000
Step 1 — Profit Margin: $50,000 / $500,000 = 10% Step 2 — Asset Turnover: $500,000 / $400,000 = 1.25 Step 3 — Equity Multiplier: $400,000 / $200,000 = 2.00
ROE = 10% × 1.25 × 2.00 = 25%
This tells us the company has moderate profit margins, decent efficiency, and uses 2× leverage.
Why This Matters
Two companies can have the same ROE but for very different reasons:
| Company | Profit Margin | Asset Turnover | Equity Multiplier | ROE |
|---|---|---|---|---|
| Company A | 20% | 1.0 | 1.5 | 30% |
| Company B | 5% | 2.0 | 3.0 | 30% |
Both have 30% ROE, but Company A earns it through high margins and low debt. Company B earns it through high volume and heavy borrowing — which is riskier.
Typical Ranges by Industry
| Industry | Profit Margin | Asset Turnover | Equity Multiplier |
|---|---|---|---|
| Software/Tech | 15–30% | 0.5–1.0 | 1.5–3.0 |
| Retail/Grocery | 2–5% | 2.0–3.5 | 2.0–4.0 |
| Banking | 20–30% | 0.05–0.10 | 8.0–15.0 |
| Manufacturing | 5–15% | 1.0–2.0 | 1.5–3.0 |
| Utilities | 8–15% | 0.3–0.5 | 2.0–4.0 |
Where to Find the Inputs
All four numbers come from a company’s financial statements:
- Net Income — Bottom line of the Income Statement
- Revenue — Top line of the Income Statement
- Total Assets — Found on the Balance Sheet
- Shareholders’ Equity — Found on the Balance Sheet (also called “Book Value of Equity”)