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DuPont ROE Calculator

Decompose ROE with the DuPont identity.

How it is calculated

The tool splits return on equity into three ratios and multiplies them: ROE = (NI / Rev) × (Rev / A) × (A / E). NI is net income for the period, Rev is revenue (sales), A is total assets and E is shareholders' equity, all in the same currency. The first ratio is net profit margin, the second is asset turnover (shown with a × sign) and the third is the equity multiplier, a measure of financial leverage. The multiplication collapses to NI / E, so the three parts always reproduce plain ROE; the value is in seeing which part drives it. Revenue, assets and equity must be above zero or no result is shown. Net income may be negative, which gives a negative margin and ROE.

Worked example

A company reports net income of 120,000, revenue of 1,500,000, total assets of 1,000,000 and equity of 400,000. Margin is 120,000 / 1,500,000 = 8.00%. Asset turnover is 1,500,000 / 1,000,000 = 1.50×. The equity multiplier is 1,000,000 / 400,000 = 2.50×. Multiplying 0.08 × 1.5 × 2.5 gives 0.30, so ROE is 30.00%. The check 120,000 / 400,000 gives the same figure. Here a fair share of the ROE comes from leverage.

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Common mistakes

  • Using total liabilities or debt instead of total assets in the third ratio. The equity multiplier is assets divided by equity.
  • Mixing periods, such as annual revenue with a quarterly net income, which makes the margin and ROE wrong.
  • Entering a negative or zero equity figure. A company with negative equity cannot be analysed with this identity and the tool returns nothing.
  • Reading a high ROE as good without looking at the multiplier. An ROE built on a large equity multiplier carries more financial risk.

Sources

About this calculator

This calculator breaks return on equity into three drivers using the DuPont identity, ROE = Net Profit Margin × Asset Turnover × Equity Multiplier (net income/revenue × revenue/assets × assets/equity), showing whether a company's ROE comes from profitability, operational efficiency, or financial leverage. Two companies can post identical ROE for very different reasons — one running thin margins on high turnover (like a grocery chain) and another leveraging debt heavily (like a bank) — and DuPont analysis makes that distinction visible.

Equity analysts, corporate finance students, and investors use the DuPont breakdown to judge the quality and sustainability of a company's ROE, since leverage-driven ROE is riskier than margin- or efficiency-driven ROE.

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Comments (1)

  • Editorial team

    Two companies can share the same ROE for very different reasons. A high equity multiplier means borrowed money is doing the work, which lifts returns in good years and hurts in bad ones, while a high margin or turnover points to operations. Look at the three components before judging the headline figure. All figures should cover the same period, and revenue, assets and equity must be above zero. Which company or sector are you comparing?

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