DuPont Analysis Calculator (3 + 5 Factor ROE)

DuPont analysis — the 1920s framework still taught at every business school

10 Things to Know About DuPont

Frequently asked questions

• Why decompose ROE instead of just looking at the number?+

  Because the same 15% ROE can mean wildly different things. A 15% ROE driven by 25% margins and modest leverage is a sustainable franchise business (LVMH, Hermès). A 15% ROE driven by 3% margins, 5× turnover, and 1× leverage is a high-volume operations business (Walmart, Costco). A 15% ROE driven by 8% margins, 1× turnover, and 1.9× leverage is a moderately-leveraged mature industrial. Each has different competitive risks, different cash flow profiles, different valuation multiples. DuPont decomposition lets you compare like-for-like and identify which kind of business you\'re really looking at.

• Should I use average or year-end assets and equity?+

  Always average (mean of beginning + ending balance). The income statement reports a flow over a 12-month period; the balance sheet is a snapshot at a point in time. Using year-end balances overstates assets/equity used during the year (they\'ve typically grown), which artificially deflates ratios. Average balances match the flow concept. This is the CFA Institute\'s recommended method and the standard in equity research.

• What\'s a "high-quality" ROE?+

  One driven by operating excellence (high margins + high turnover) rather than financial leverage. A 20% ROE from 12% margins × 1.5 turnover × 1.1 leverage is high-quality — the business genuinely creates value. A 20% ROE from 4% margins × 1.5 turnover × 3.3 leverage is leverage-amplified — the underlying business is mediocre, and the ROE will collapse if interest rates rise or debt covenants tighten. Buffett famously avoids leverage-driven ROE; he wants ROE from competitive moats, not balance sheet engineering.

• Why do banks have such high equity multipliers?+

  Banks are inherently leveraged businesses. They take deposits (liabilities) and make loans (assets). For every $1 of equity, banks typically hold $10-15 in assets — equity multiplier of 10-15×. This leverage allows banks to generate 10-15% ROE on what would otherwise be a very low-margin spread business (net interest margin of 2-4%). Regulatory capital rules (Basel III) set minimum equity-to-asset ratios; banks operate close to those minimums to maximise ROE. DuPont for banks is dominated by the multiplier; comparing bank-to-bank DuPont can\'t reveal much because all banks have similar multipliers and the variation is in NIM efficiency.

• What\'s the difference between ROE and ROA?+

  ROE = NI / Equity. The return on shareholder capital — what shareholders earn. ROA = NI / Assets. The return on all capital (debt + equity). ROE = ROA × Equity Multiplier. A firm with high equity multiplier amplifies ROA into higher ROE. ROA is the cleaner measure of operating quality because it isn\'t distorted by capital structure decisions. Bank analysts often emphasise ROA over ROE precisely because bank ROE is dominated by leverage. For most non-financial comparisons, both ROE and ROA matter.

• When does the 5-factor version matter most?+

  For year-over-year analysis of margin compression. If net margin drops from 12% to 8%, the 3-factor model can\'t tell you why. The 5-factor reveals: maybe operating margin held but interest burden grew (rising rates), maybe tax burden changed (tax law), maybe operating margin compressed (real business issue). Different causes have different valuation implications. Also useful for cross-jurisdictional comparison — companies in different tax regimes have different tax burdens but similar operating performance; the 5-factor disentangles them.

• How does this compare to "Return on Invested Capital" (ROIC)?+

  ROIC = NOPAT / Invested Capital = NOPAT / (Debt + Equity − Cash). Different conceptually from ROE because ROIC uses NOPAT (the unlevered operating return) and includes debt + equity in the denominator. ROIC measures capital efficiency regardless of how the firm is financed; ROE measures shareholder return given the existing financing. Both useful: ROIC for evaluating capital allocation skill, ROE for evaluating equity-investor outcomes. McKinsey\'s "Valuation" textbook prefers ROIC; CFA traditionally emphasises ROE/DuPont. Use both for comprehensive analysis.

• Is anything I enter saved?+

  No. Revenue, EBIT, EBT, net income, assets, equity — every input stays in your browser. The 3-factor + 5-factor decomposition runs as client-side JavaScript. Open DevTools → Network when you click Run and you\'ll see zero outbound requests. Safe for confidential equity research.

• Where can I read more about DuPont analysis?+

  Standard reference: Brealey-Myers-Allen, Principles of Corporate Finance, Ch.28. CFA Institute Level 1 Financial Reporting and Analysis curriculum has full DuPont coverage. Penman SH, Financial Statement Analysis and Security Valuation for the deep rigorous treatment. Damodaran\'s data archive (pages.stern.nyu.edu/~adamodar/) has industry-average DuPont decompositions updated annually. Original 1914 framework is documented in Brown\'s autobiography Some Reminiscences of an Industrialist.

• Does DuPont work for ASEAN firms?+

  Yes — the framework is universal. For ASEAN banks (DBS, OCBC, Maybank, BCA): expect high equity multipliers (typically 8-12×), with ROE in 10-15% range. ASEAN consumer staples (Nestlé Malaysia, Indofood): moderate margin, moderate turnover, low leverage — similar to global consumer staples. Singapore REITs: high turnover (rental income), moderate leverage (regulator-capped), modest margins after CapEx — a structurally lower-ROE format relative to operating companies but more predictable. Use the same Damodaran-style benchmarks adjusted for regional industry mix.

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