Developed by DuPont Corporation, the dupont analysis calculator enables businesses to dissect and evaluate their Return on Equity by breaking it down into its core components.
A company with the following metrics:
- Net Income: $1,000,000
- Sales: $5,000,000
- Total Assets: $4,000,000
- Shareholders’ Equity: $2,000,000
DuPont Analysis Calculator
| Net Profit Margin | Asset Turnover | Financial Leverage | ROE |
|---|---|---|---|
| 8% | 1.5 | 2.0 | 24% |
| 12% | 1.0 | 1.8 | 21.6% |
| 15% | 0.8 | 1.6 | 19.2% |
| 10% | 2.5 | 1.5 | 37.5% |
| 20% | 0.6 | 2.5 | 30% |
| 5% | 3.0 | 1.2 | 18% |
| 9% | 1.2 | 2.3 | 24.84% |
| 14% | 1.8 | 1.4 | 35.28% |
| 11% | 1.4 | 1.9 | 29.34% |
| 16% | 0.9 | 2.1 | 30.24% |
DuPont Analysis Calculation Formula
The DuPont formula combines three crucial financial ratios:
ROE = Net Profit Margin × Asset Turnover × Financial LeverageWhere:
– Net Profit Margin = Net Income / Sales
– Asset Turnover = Sales / Total Assets
– Financial Leverage = Total Assets / Shareholders’ Equity
Using an example:
- Net Profit Margin = $1,000,000 / $5,000,000 = 0.20 (20%)
- Asset Turnover = $5,000,000 / $4,000,000 = 1.25
- Financial Leverage = $4,000,000 / $2,000,000 = 2.0
ROE = 0.20 × 1.25 × 2.0 = 0.50 (50%)How to Calculate DuPont Analysis?
To perform a DuPont analysis, follow these systematic steps:
- Calculate Net Profit Margin:
- Gather net income and sales data.
- Divide net income by sales.
- Express as a percentage.
- Determine Asset Turnover:
- Collect sales and total assets figures.
- Divide sales by total assets.
- Compute Financial Leverage:
- Obtain total assets and shareholders’ equity values.
- Divide total assets by shareholders’ equity.
- Multiply all components to get the final ROE figure.
What is DuPont Analysis?
DuPont Analysis is a comprehensive framework that examines a company’s financial performance by analyzing the interconnection between profitability, operational efficiency, and leverage. This method helps identify specific areas where a company excels or needs improvement.
Consider Company XYZ:
- Their ROE of 15% might seem satisfactory.
- DuPont analysis reveals:
- Low profit margin (5%)
- High asset turnover (2.0)
- Moderate leverage (1.5)
DuPont Analysis Calculator Examples
Company A (Retail):
- Net Income: $2M
- Sales: $40M
- Total Assets: $20M
- Equity: $10M
Results:
- Net Profit Margin = 5%
- Asset Turnover = 2.0
- Financial Leverage = 2.0
- ROE = 20%
Company B (Technology):
- Net Income: $3M
- Sales: $15M
- Total Assets: $30M
- Equity: $20M
Results:
- Net Profit Margin = 20%
- Asset Turnover = 0.5
- Financial Leverage = 1.5
- ROE = 15%
What is the 3 step DuPont analysis formula?
The three-step DuPont analysis breaks down ROE into:
- Profitability: Net Profit Margin
- Efficiency: Asset Turnover
- Leverage: Equity Multiplier
Example for a manufacturing company:
Step 1: Net Profit Margin = $5M / $50M = 10%
Step 2: Asset Turnover = $50M / $40M = 1.25
Step 3: Equity Multiplier = $40M / $20M = 2.0
Final ROE = 10% × 1.25 × 2.0 = 25%References:
- Harvard Business Review – Financial Analysis Tools: https://hbr.org/topic/financial-analysis
- Corporate Finance Institute – DuPont Analysis: https://corporatefinanceinstitute.com/resources/knowledge/finance/dupont-analysis/
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