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DuPont Analysis Calculator

Enter your income statement and balance sheet figures to decompose Return on Equity (ROE) into its driving components. Choose the 3-factor model for a quick margin-efficiency-leverage split, or the 5-factor model for a deeper look at how tax, interest, and operating efficiency each contribute. Both Return on Equity and Return on Assets update as you type.

Your details

The 3-factor model splits ROE into net profit margin, asset turnover, and financial leverage. The 5-factor model further separates the profit margin into tax burden, interest burden, and EBIT margin.
Total net sales or revenues for the period from the income statement.
USD
Net income after all expenses, interest, and taxes from the income statement.
USD
Average of beginning and ending total assets from the balance sheet. Using the average smooths out seasonal swings.
USD
Average of beginning and ending shareholders' equity from the balance sheet.
USD
Return on Equity (ROE)Strong ROE
0.25%

Net income as a percentage of shareholders equity

Return on Assets (ROA)0.13%
Net Profit Margin0.1%
Asset Turnover1.25x
Equity Multiplier (Financial Leverage)2x
ROE0.25%
ROA0.13%
Net Margin0.1%
0.25% x
Poor<0.05Weak0.05-0.12Acceptable0.12-0.2Strong0.2+

ROE is 25.0%: a solid return for most industries.

  • Net profit margin of 10.0% means you keep 10.0 cents of every dollar of revenue as profit.
  • Asset turnover of 1.25x indicates each dollar of assets generates 1.25 dollars in revenue.
  • Equity multiplier of 2.00x reflects moderate financial leverage.
  • ROA of 12.5% shows how efficiently total assets are converted into profit, independent of how the company is financed.

Next stepROE above cost of equity (typically 8-12% for most industries) creates value for shareholders. Compare to your sector benchmark to put the number in context.

What is DuPont analysis?

DuPont analysis is a framework for breaking down Return on Equity (ROE) into a set of component ratios so you can see exactly which parts of a business - profitability, efficiency, or leverage - are driving the shareholder return. It was developed by the DuPont Corporation in the 1910s and remains one of the most widely used tools in equity analysis, credit assessment, and strategic planning. Rather than asking "what is our ROE?", DuPont lets you ask "why is our ROE what it is, and which lever should we pull to improve it?"

3-factor versus 5-factor DuPont model

The 3-factor model expresses ROE as the product of three ratios: net profit margin (how much of each sales dollar becomes profit), asset turnover (how many dollars of revenue each dollar of assets generates), and the equity multiplier (how many dollars of assets are funded for each dollar of equity, a measure of financial leverage). The 5-factor model drills deeper into the profit margin by splitting it into an EBIT margin (operating efficiency), an interest burden (the fraction of operating profit surviving after interest), and a tax burden (the fraction of pre-tax profit surviving after tax). The 5-factor version is especially useful when comparing companies with different capital structures or tax rates, because it isolates the operating performance from financing and tax decisions. Both models give the same final ROE figure; the difference is how much diagnostic detail you get.

How to interpret each component

Net profit margin reflects pricing power and cost control. A rising margin means the company keeps more of every sale, whether through higher prices, lower costs, or both. Asset turnover reflects operating efficiency and capital intensity. Capital-light businesses like software companies can generate high turnover; capital-heavy ones like utilities or manufacturers typically have lower turnover. The equity multiplier (financial leverage) amplifies ROE, but it also amplifies losses in bad years and raises insolvency risk if debt cannot be serviced. Return on Assets (ROA) - which equals net profit margin times asset turnover - strips out the leverage effect and shows the underlying business efficiency. Comparing ROE to ROA is one of the fastest ways to judge how much of the ROE is real operating performance versus borrowed amplification.

Using DuPont to benchmark and compare companies

When comparing two companies with similar ROEs, DuPont often reveals very different strategies. A retailer might achieve 15% ROE via thin margins but very high asset turnover. A luxury brand might reach the same number with fat margins but slow turnover. A highly leveraged firm might inflate its ROE above both with a multiplier of 4x or 5x, carrying substantially more risk in the process. Stripping ROE into components lets analysts reward genuine operating excellence and penalise leverage-driven returns that might not be sustainable. For the same reason, banks and regulators pay close attention to ROA alongside ROE, since high leverage is intrinsic to the banking model and ROE can look strong even when underlying profitability is thin.

Typical ROE benchmarks by sector

SectorTypical ROE RangeBenchmark
Technology15% - 35% Good above 20%
Consumer Staples15% - 25% Good above 15%
Healthcare12% - 20% Good above 15%
Financials (Banks)8% - 14% Good above 10%
Industrials10% - 18% Good above 12%
Energy5% - 15% Good above 10%
Utilities8% - 12% Good above 9%
Real Estate (REITs)5% - 12% Good above 8%
Materials8% - 15% Good above 10%
Telecommunications10% - 20% Good above 12%

Approximate median ROE ranges by industry. Individual companies vary widely based on business model and capital structure.

Frequently asked questions

What is a good ROE?

A commonly cited rule of thumb is that ROE above 15-20% is strong for most non-financial industries. However, the right benchmark depends heavily on sector. Technology companies regularly hit 20-35%, while utilities and banks consider 8-12% acceptable given their capital-intensive or regulated nature. The most meaningful comparison is against direct peers and against the company's own cost of equity - an ROE consistently above the cost of equity (typically 8-12%) means the company is creating value for shareholders.

How does leverage affect ROE in DuPont analysis?

The equity multiplier in DuPont analysis captures financial leverage. A multiplier of 2 means the company uses two dollars of assets for every dollar of equity - half of the assets are debt-financed. A higher multiplier mechanically raises ROE even if operating performance is flat, because the same profit is divided by a smaller equity base. This is why ROE alone can be misleading: a company that doubles its debt can instantly boost its ROE without improving margins or efficiency. Always compare ROE to ROA, which removes the leverage effect, to see how much of the ROE comes from genuine business performance.

What is the difference between the 3-factor and 5-factor DuPont models?

Both models arrive at the same ROE figure, but the 5-factor version breaks the net profit margin into three pieces: the EBIT margin (operating profitability before interest and taxes), the interest burden (EBT/EBIT, which shows how much interest reduces operating income), and the tax burden (Net Income/EBT, which shows how much tax reduces pre-tax income). This extra detail is valuable when comparing companies across different tax jurisdictions or capital structures, because it separates the operating performance from financing and tax decisions that may be partly outside management's control.

Why does DuPont use average assets and average equity?

Assets and equity are balance sheet values recorded at a single point in time, while net income and revenue are flows accumulated over the whole year. Using the average of the beginning and ending balance sheet values aligns the denominator timing with the income statement, giving a more accurate picture of the resources employed during the period. For quarterly or more granular analysis, some analysts use a rolling four-quarter average.

Can DuPont analysis be used for negative net income?

The formula still produces a negative ROE and ROA when net income is negative, which is mathematically consistent. However, the component ratios become harder to interpret - a negative profit margin and negative ROE could stem from a startup investing heavily in growth, a cyclical business in a downturn, or a structurally unprofitable business. In loss-making periods, focus on the EBIT margin and asset turnover rather than the overall ROE to assess whether the underlying operations are viable before tax and financing costs.

Sources

Written by Sarah Klein, CFP Certified Financial Planner · Chicago, USA

Fifteen years translating mortgage tables and amortization schedules into decisions that actually help real borrowers.

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