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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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