DuPont Analysis Calculator (ROE Breakdown)
Splits a company's return on equity into profit margin, asset turnover and leverage, so you can see where a high or low ROE really comes from.
Results
The dashed line marks the value you entered.
What this tool does
Two firms can both earn a 30 % return on equity in completely different ways: one by selling with fat margins, another by turning assets over quickly on thin margins, a third simply by borrowing heavily so that a small equity base carries everything. The DuPont identity multiplies net margin, asset turnover and the equity multiplier to expose which of the three is doing the work. A high ROE that rests mainly on the equity multiplier is the riskiest kind, because debt magnifies losses just as it magnifies gains.
Formula
ROE = net margin × asset turnover × equity multiplier = (NI ÷ sales) × (sales ÷ assets) × (assets ÷ equity)
Variables
| Symbol | Meaning | Unit |
|---|---|---|
ni | Net income (profit after tax) | — |
sa | Sales (revenue) | — |
ta | Total assets | — |
eq | Shareholders' equity (book value) | — |
ROE | Return on equity (ROE) | % |
NM | Net profit margin | % |
AT | Asset turnover (sales ÷ assets) | — |
EM | Equity multiplier (assets ÷ equity) | — |
ROA | Return on assets (ROA) | % |
Worked example
- Net income (profit after tax)120
- Sales (revenue)1500
- Total assets1000
- Shareholders' equity (book value)400
- Return on equity (ROE)30.00 %
- Net profit margin8.00 %
- Asset turnover (sales ÷ assets)1.500
- Equity multiplier (assets ÷ equity)2.500
- Return on assets (ROA)12.00 %
Limitations
- This is an informational calculator, not personalised financial advice. Rates, fees, taxes and contract conditions vary between institutions and countries.
- The tool works with whatever currency you use for the inputs; it does not convert between currencies.