Two companies can have the same ROE for very different reasons: one through high margins, another through heavy borrowing. The DuPont breakdown, first used at DuPont in the 1920s, reveals which.
How to use the DuPont Analysis Calculator
- Sales (revenue)
- Net income
- Total assets
- Total equity
Results update as you type, and every field accepts the units shown in its menu.
How it works
Enter sales, net income, total assets and shareholders’ equity.
Inputs explained
| Field | What to enter |
|---|---|
| Sales (revenue) | Amount in your currency |
| Net income | Amount in your currency |
| Total assets | Amount in your currency |
| Total equity | Amount in your currency |
What each result means
- Net profit margin = [Net income]÷[Sales (revenue)]×100
- Total asset turnover = [Sales (revenue)]÷[Total assets]
- Financial leverage (equity multiplier) = [Total assets]÷[Total equity]
- Return on equity (ROE) = [Net profit margin]×[Total asset turnover]×[Financial leverage (equity multiplier)]
- Return on assets (ROA) = [Net income]÷[Total assets]×100
Example values
How the main result changes when Sales changes and everything else stays at the example values above:
| Sales (revenue) | Return on equity (ROE) (%) |
|---|---|
| 2,500,000 | 25 |
| 3,750,000 | 25 |
| 5,000,000 | 25 |
| 6,250,000 | 25 |
| 7,500,000 | 25 |
| 10,000,000 | 25 |
Formula
ROE = net profit margin × asset turnover × equity multiplier
= (net income ÷ sales) × (sales ÷ total assets) × (total assets ÷ equity)
Worked example
Inputs: Sales (revenue): $5,000,000; Net income: $400,000; Total assets: $4,000,000; Total equity: $1,600,000.
Results: Net profit margin = 8 %; Total asset turnover = 1.25 ×; Financial leverage (equity multiplier) = 2.5 ×; Return on equity (ROE) = 25 %; Return on assets (ROA) = 10 %.
Frequently asked questions
What is DuPont analysis?
A breakdown of ROE into margin, turnover and leverage.
Why is it useful?
It shows whether ROE comes from operations or from debt.
What is the 5-step DuPont?
It also splits margin into tax burden, interest burden and operating margin.