DuPont Analysis Calculator (3 + 5 Factor ROE)

CFA DUPONT FINANCE ROE VALUATION
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By Checked against sources by , Founder & Architect, RECATOOLS Published Updated Last reviewed

DuPont analysis calculator. 3-factor + 5-factor ROE decomposition: net margin × asset turnover × equity multiplier. Reveals where return on equity comes from — operating efficiency, asset use, or financial leverage.

RT-FIN-231 · Finance & Money
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DuPont Analysis Calculator

Income statement ($M)
total sales
for 5-factor only
EBIT − interest expense
Bottom line + balance sheet ($M)
after-tax bottom line
avg of beginning + ending
avg of beginning + ending
📅 Research current as of 19 Oct 2026 · Sources: ROE = net income ÷ equity, decomposed as the identity (NI/Revenue) × (Revenue/Assets) × (Assets/Equity), and in five factors with NI/EBT × EBT/EBIT × EBIT/Revenue. Industry figures: Damodaran (NYU Stern) US data, January 2026; FDIC Quarterly Banking Profile, Q2 2026
Rates, regulations, and lender practices change frequently — verify current figures with your provider or licensed advisor before acting.
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How to use the DuPont analysis calculator

Enter revenue, EBIT, EBT

Revenue: top-line sales. EBIT: operating income before interest + tax. EBT: pre-tax income (EBIT − interest expense). All from the income statement. The 3-factor DuPont only needs revenue + net income; the 5-factor variant adds EBIT and EBT to decompose net margin into tax × interest × operating components.

Enter net income + assets + equity

Net Income: bottom-line earnings after tax. Total Assets: from the balance sheet — preferably average of beginning and ending values. Shareholders' Equity: also from balance sheet, also averaged. Average values prevent distortion from material capital structure changes during the period.

Read 3-factor decomposition

Net Margin × Asset Turnover × Equity Multiplier = ROE. Three sources of ROE: (1) Net margin — how much profit per dollar of sales. (2) Asset turnover — how efficiently assets generate sales. (3) Equity multiplier — how much leverage. A company with 50% ROE can get there via 25% margins × 1.0 turnover × 2.0 leverage OR 5% margins × 5.0 turnover × 2.0 leverage. Same ROE, very different businesses.

Read 5-factor extended decomposition

The 5-factor splits net margin further. Tax Burden (NI/EBT) ≈ (1 − effective tax rate). Interest Burden (EBT/EBIT) shows how much pre-tax income survives interest expense. Operating Margin (EBIT/Revenue) is the core profitability. This reveals whether ROE is driven by operating quality vs financial engineering.

Interpret the driver profile

The "Profile" line says which factors sit outside this page's bands (operating margin 5–20%, asset turnover 0.5–1.5×, equity multiplier 1.5–3×) and the box below names the factor doing most of the lifting. The bands are this calculator's, not an industry standard: a 10× multiplier is ordinary for a bank and alarming for a software company, so compare each factor with the same company's earlier years and with its own industry.

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DuPont analysis — from a 1914 return-on-investment formula to the ROE identity

DuPont analysis is one of the oldest pieces of financial analysis still in active use. The Hagley Museum and Library, which holds the DuPont company archives, credits Donaldson Brown: as the company's Assistant Treasurer in 1914 he combined earnings, working capital and investment in plant into a single measure he called return on investment, later known as the DuPont method. Brown left for General Motors in 1921 as its vice-president of finance. His measure was a return on investment; the version on this page is a return on equity, which adds a third term — the equity multiplier — for how much of the asset base is financed by borrowing. The question it answers is the same: why does this company earn the return it does? Two companies can share a 15% ROE for opposite reasons. Company A: 30% net margin, 0.5× asset turnover, no liabilities (multiplier 1.0) — the shape of a high-margin, asset-light business. Company B: 2% net margin, 5× asset turnover, multiplier 1.5 — the shape of a high-volume retailer. Same ROE, opposite business models.

The 3-factor framework

ROE = (NI/Revenue) × (Revenue/Assets) × (Assets/Equity). The revenue and the assets cancel, so the product is exactly net income ÷ equity — the decomposition adds no information, it shows where the number comes from. Net margin — profit kept from each unit of sales. Asset turnover — sales generated by each unit of assets. Equity multiplier (Assets/Equity) — financial leverage. Because assets = liabilities + equity, the multiplier is 1 + total liabilities ÷ equity; it equals 1 + debt ÷ equity only when every liability is debt, which is rarely true (payables, deferred revenue and provisions are liabilities too). A higher multiplier lifts ROE with no change in the business, which is exactly why it is worth seeing on its own line.

Two companies with 15% ROE can be radically different. DuPont shows you whether it's a high-margin brand business, a high-turnover retailer, or a leverage-amplified bank. Same number, three completely different bets.

The 5-factor extension

The 5-factor variant splits net margin into tax burden × interest burden × operating margin. This separates operating performance (operating margin) from financing decisions (interest burden, via leverage) and tax planning (tax burden). For credit analysis especially, the 5-factor view is more useful — you can see how much of a fall in net margin comes from rising interest expense and how much from the operations. The five factors multiply back to the same ROE as the three; if they ever disagree, an input is wrong.

Industry context, with dates

Aswath Damodaran (NYU Stern) publishes US industry tables every January. They give net margin and ROE by industry — not the three DuPont factors — so they benchmark two of the pieces. In the January 2026 data: Software (System & Application) net margin 25.49%, ROE 29.62%; Retail (General) 5.61% and 26.05%; Utility (General) 14.18% and 10.42%; Bank (Money Center) 28.89% and 12.86%. The bank line is the instructive one: a bank's net margin is not low, its asset turnover is, because its loan book is many times its revenue. Leverage closes the gap. FDIC-insured US institutions held equity of 9.92% of assets at 30 June 2026 — an equity multiplier of about 10× — and their annualised second-quarter return on assets of 1.37% became a return on equity of 13.76%.

Donaldson Brown's 1914 return on investment, banks at ten times equity, and what the multiplier hides

01

Donaldson Brown, DuPont's Assistant Treasurer, devised its return on investment measure in 1914 (Hagley Museum and Library). He became General Motors' vice-president of finance in 1921.

02

3-factor: ROE = Margin × Turnover × Equity multiplier. The first two multiply to the return on assets; the multiplier turns that into the return on equity.

03

5-factor: splits net margin into Tax × Interest × Operating. Reveals operating vs financing drivers.

04

US software (Damodaran, Jan 2026): net margin 25.49%, ROE 29.62% — the margin does most of the work.

05

US banks: equity 9.92% of assets at 30 June 2026 (FDIC) — a multiplier of about 10×. Turnover is tiny; leverage carries the ROE.

06

US general retail (Damodaran, Jan 2026): net margin 5.61% yet ROE 26.05% — turnover and leverage make up the difference.

07

ROE = ROA × Equity Multiplier. If equity multiplier > 3, ROE is partly leverage-amplified. Check sustainability.

08

Use average assets and equity (avg of beginning + ending), not point-in-time. Avoids distortion from material capital structure changes.

09

Equity multiplier = 1 + liabilities ÷ equity, not 1 + debt ÷ equity: payables and deferred revenue count too. Liabilities of 2× equity make a multiplier of 3.

10

Damodaran's yearly ROE decomposition by industry splits ROE into a return on capital and a leverage effect — a different cut from DuPont's three factors.

Frequently asked questions

  • Because the same 15% ROE can describe very different businesses. 15% from a 25% net margin on low turnover is a high-margin business; 15% from a 3% margin, 5× turnover and no leverage is a high-volume operation; 15% from an 8% margin, 1× turnover and a 1.9× multiplier is a moderately leveraged one (8% × 1 × 1.9 = 15.2%). Each carries different risks and deserves a different multiple. The decomposition lets you compare like with like and see which kind of business you are looking at.

  • Usually the average of the opening and closing balance. Net income is earned over the whole year while the balance sheet is a snapshot on one day, so the average is the better match for the capital that was actually in use. For a company growing its balance sheet, year-end figures overstate that capital and understate the ratios. Use the same convention for every year and every company you compare — the identity holds either way, as long as the same assets and equity figures go into every factor.

  • One that comes from the business — margin and turnover — rather than from the balance sheet. About 20% from a 12% margin, 1.5× turnover and a 1.1× multiplier (19.8%) and about 20% from a 4% margin, 1.5× turnover and a 3.3× multiplier (19.8%) print the same headline. The second depends on borrowed money: a rise in interest costs or a tightening of credit hits it far harder, because the multiplier amplifies a fall in earnings exactly as it amplified the rise.

  • Because lending is financed mostly with deposits and other borrowing. FDIC-insured US institutions held total equity of 9.92% of assets at 30 June 2026, an equity multiplier of about 10×; their core capital (leverage) ratio was 8.98%. With a net interest margin of 3.32% and a return on assets of 1.37% (annualised, Q2 2026), it is the multiplier that turns a thin return on assets into the industry's 13.76% return on equity. That is why bank analysts watch ROA and capital ratios as closely as ROE: two banks with the same ROE can be running very different amounts of leverage.

  • 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.

  • 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.

  • ROIC = NOPAT / Invested Capital, where invested capital is usually debt + equity − cash. It differs from ROE because NOPAT is the operating return before financing, and the denominator includes the lenders' capital. ROIC measures how well capital is deployed regardless of how it is financed; ROE measures what the shareholders earn given the financing actually chosen. Use both: a company whose ROE runs far above its ROIC is earning the difference with leverage.

  • 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 no request carrying your figures.

  • For the history: the Hagley Museum and Library's article on Donaldson Brown, "the father of ROI" at DuPont. For the analysis: Penman SH, Financial Statement Analysis and Security Valuation, which treats the decomposition as an identity and builds on it. For benchmarks: Aswath Damodaran's data page at NYU Stern (pages.stern.nyu.edu/~adamodar/), updated each January, with margins and ROE by industry; for banks, the FDIC Quarterly Banking Profile.

  • Yes — the identity is the same in any currency and under any accounting standard, though two firms can differ on this page purely because one capitalises what the other expenses. Banks anywhere run high multipliers, so compare an ASEAN bank with other banks, not with an industrial. Singapore REITs show the opposite shape to a bank: rent is a small fraction of the property it comes from, so asset turnover is low, and leverage is capped by regulation — since 28 November 2024 MAS applies a single aggregate leverage limit of 50% to every REIT, with a minimum interest coverage ratio of 1.5×. Borrowing at that limit and nothing else would mean an equity multiplier of about 2×.

Method & sources

How it computes

ROE = net income ÷ equity, shown two ways that are identities of it: (NI/Revenue) × (Revenue/Assets) × (Assets/Equity), and with NI/Revenue split into NI/EBT × EBT/EBIT × EBIT/Revenue. ROA = NI ÷ assets. Revenue, assets and equity must be positive and equity no larger than assets; EBIT or EBT ≤ 0 is flagged as uninterpretable. Equity multiplier − 1 = liabilities ÷ equity (RecaCorpFin.dupont).

What this tool implements

  • A high equity multiplier raises ROE without any operating improvement whatsoever. The decomposition exists precisely so that leverage-driven ROE cannot be mistaken for performance, and the tool shows the multiplier — and liabilities ÷ equity, which is multiplier − 1 — rather than folding it into the headline.
  • Revenue, assets and equity must all be positive and equity cannot exceed assets; the tool refuses and clears the previous results rather than returning a ratio. Negative equity makes the multiplier meaningless, which is exactly the situation in which a naive ROE looks most impressive.
  • With EBIT ≤ 0 the interest burden, and with EBT ≤ 0 the tax burden, are still computed (the product still equals ROE) but are flagged as not interpretable as "share left after interest" or "1 − tax rate".
  • The profile bands (operating margin 5–20%, turnover 0.5–1.5×, multiplier 1.5–3×) are the page's own and are labelled as such; they are not an industry standard.
  • ⚠️ The decomposition adds no information — it only redistributes it. It cannot tell you whether the margin is sustainable, whether the assets are fairly carried, or whether the leverage is prudent.
  • Corrected 2026-10-19: factors printed to 3 dp (default printed factors multiplied to 19.99% beside 20.00%); stale results left on screen after a refused input; blanks silently replaced by defaults; "Damodaran publishes industry-average DuPont decompositions" (his ROE decomposition is return on capital plus a leverage effect); banks "low margin (15-25%)" (Damodaran Jan 2026 money-center banks 28.89% — the low factor is turnover); "equity multiplier = 1 + D/E" (1 + liabilities ÷ equity); banks "operate close to" capital minimums (FDIC Q2 2026 leverage ratio 8.98%); S-REITs "high turnover" (low); "the 1920s framework" (Brown, 1914); unsourced company profiles and CFA syllabus claims removed.

Sources

What can make this go out of date

  • Nothing is fetched. Every figure is read off a filed income statement and balance sheet by the user, so the analysis inherits whatever accounting policies produced them — two firms can differ on this page purely because one capitalises what the other expenses.
  • The industry figures in the prose are dated: Damodaran US data as of January 2026 (refreshed each January) and the FDIC Quarterly Banking Profile for Q2 2026 (quarterly).
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