Decompose ROE into its building blocks: profit margin × asset turnover × leverage — plus a 5-factor version, a two-company comparator, and an interpretation table. All calculations run 100% in your browser; no data is sent anywhere.
ROE = (Net income ÷ Sales) × (Sales ÷ Total assets) × (Total assets ÷ Equity)
ROE = (NI ÷ EBT) × (EBT ÷ EBIT) × (EBIT ÷ Sales) × (Sales ÷ Assets) × (Assets ÷ Equity)
Enter 3-factor figures for companies A and B. The calculator computes each ROE, the difference, and the biggest driver of the difference (based on logarithmic contribution to the ROE ratio).
Built-in example: A has ROE 20% (10% × 0.5 × 4.0) and B has ROE 15% (10% × 0.5 × 3.0) — a 5 percentage-point gap, driven purely by higher leverage at A.
The table below gives descriptive context for decomposed ROE figures. This is general context, not an assessment of any specific company.
| ROE range | Descriptive meaning | What to check via DuPont |
|---|---|---|
| < 0% | The company is loss-making; equity eroded by net losses. | Negative margin — from operations or non-recurring items? |
| 0–10% | Low return relative to the equity employed. | Thin margins or idle assets (low turnover)? |
| 10–15% | Common range for many mature companies across sectors. | Composition: balanced or leaning on a single factor? |
| 15–20% | Strong returns; fair to ask about the source. | Driven by genuinely superior margins, or by leverage? |
| > 20% | Very high; mathematically increasingly likely to involve large leverage. | Separate the leverage contribution — compare with the sector average. |
DuPont analysis is a method of breaking down Return on Equity (ROE) into its components. The 3-factor version: ROE = net profit margin × asset turnover × leverage (assets ÷ equity). The 5-factor version further splits the profit margin into tax burden, interest burden, and operating margin. The goal is to explain where ROE comes from, not just what the number is.
The end result is mathematically identical: margin × turnover × leverage always equals net income ÷ equity because the terms cancel out. The difference: direct ROE gives a single number, while DuPont shows its contributors — whether high ROE comes from large margins, productive assets, or large debt. The limitation: DuPont still uses the same accounting figures, so it does not improve data quality; it only changes the perspective.
Direct ROE is enough when you only need a quick comparative figure across periods or similar companies. DuPont becomes useful when the number needs explaining: which factor drove ROE up or down, or when two companies have similar ROE but very different risk profiles.
The 5-factor decomposition splits the net profit margin into three components: tax burden (net income ÷ earnings before tax), interest burden (earnings before tax ÷ EBIT), and operating margin (EBIT ÷ sales). Multiplied by asset turnover and leverage, the result still equals ROE. This version helps reveal whether ROE is depressed by taxes, interest costs, or core operations.
First, DuPont uses accounting figures, so it is vulnerable to accounting-method choices and non-recurring items. Second, high leverage raises ROE mathematically without reflecting quality — a heavily indebted company can look more profitable. Third, DuPont does not measure cash flow, valuation, or business prospects; it only decomposes a single ratio.
Because their compositions can be opposites: company A has 20% ROE from 10% margin × 0.5 turnover × 4.0 leverage, while company B has 20% ROE from 20% margin × 1.0 turnover × 1.0 leverage. The ROE figures are identical, but B uses no debt at all while A uses 4× leverage. Risk-profile differences like this are only visible through decomposition, not from a single ROE.
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