DuPont Analysis Calculator

Understanding Return on Equity Deconstruction

The DuPont Analysis Calculator breaks down a company's Return on Equity (ROE) into component financial ratios. Originally developed by the DuPont Corporation in the 1920s, this method helps investors and financial analysts uncover the underlying drivers of financial performance rather than relying solely on a single aggregate number.

The 3-Step DuPont Formula

The classic 3-step DuPont model decomposes ROE into three core components: net profit margin, asset turnover, and financial leverage (equity multiplier).

$$\text{ROE} = \text{Net Profit Margin} \times \text{Asset Turnover} \times \text{Equity Multiplier}$$

Where:

• Net Profit Margin: $\frac{\text{Net Income}}{\text{Revenue}}$ (Operating Efficiency)
• Asset Turnover: $\frac{\text{Revenue}}{\text{Average Total Assets}}$ (Asset Utilization)
• Equity Multiplier: $\frac{\text{Average Total Assets}}{\text{Shareholders' Equity}}$ (Financial Leverage)

The Extended 5-Step DuPont Model

The 5-step DuPont framework further divides Net Profit Margin into tax burden, interest burden, and operating (EBIT) margin:

$$\text{ROE} = \frac{\text{Net Income}}{\text{EBT}} \times \frac{\text{EBT}}{\text{EBIT}} \times \frac{\text{EBIT}}{\text{Revenue}} \times \frac{\text{Revenue}}{\text{Assets}} \times \frac{\text{Assets}}{\text{Equity}}$$