Financial Data
Where to Find These Numbers
Income Statement:
- Revenue (Sales)
- EBIT (Operating Income)
- EBT (Pre-tax Income)
- Net Income
Balance Sheet:
- Total Assets
- Shareholders' Equity
Return on Equity (ROE)
DuPont Factor Breakdown
Step-by-Step Calculation
What Each Component Measures
| Component | Measures | Improvement Levers |
|---|---|---|
| Profit Margin | Profitability - how much revenue becomes profit | Pricing power, cost control, product mix |
| Asset Turnover | Efficiency - how well assets generate revenue | Inventory management, capacity utilization |
| Equity Multiplier | Leverage - degree of debt financing | Capital structure decisions (higher = more debt) |
| Component | Measures |
|---|---|
| Tax Burden | Tax efficiency - portion of pre-tax profit retained after taxes |
| Interest Burden | Interest efficiency - impact of debt interest on operating income |
| Operating Margin | Operational efficiency - core business profitability before interest/taxes |
| Asset Turnover | Asset efficiency - revenue generated per dollar of assets |
| Equity Multiplier | Financial leverage - total assets relative to equity (debt usage) |
Understanding DuPont Analysis
What is DuPont Analysis?
DuPont Analysis is a financial framework that breaks down Return on Equity (ROE) into its component parts. Named after the DuPont Corporation which popularized it in the 1920s, this analysis helps identify the specific drivers of a company's profitability.
Rather than looking at ROE as a single number, DuPont analysis reveals how a company achieves its return - whether through operational efficiency, asset utilization, or financial leverage.
3-Factor Model
ROE = Profit Margin x Asset Turnover x Equity Multiplier
- Profit Margin: Profitability (NI/Revenue)
- Asset Turnover: Efficiency (Revenue/Assets)
- Equity Multiplier: Leverage (Assets/Equity)
5-Factor Model
ROE = Tax x Interest x Op. Margin x Turnover x Multiplier
- Tax Burden: Tax efficiency (NI/EBT)
- Interest Burden: Debt cost impact (EBT/EBIT)
- Operating Margin: Core profitability (EBIT/Revenue)
- Plus: Asset Turnover + Equity Multiplier
How to Interpret Results
When comparing companies or analyzing trends over time, look at which components are driving ROE changes:
- High Profit Margin: Strong pricing power, efficient cost management, or premium products
- High Asset Turnover: Efficient use of assets, lean operations (common in retail)
- High Equity Multiplier: Significant debt usage - amplifies returns but increases risk
Limitations
- Accounting-based: Results depend on accounting choices and can be affected by one-time items
- Point-in-time: Uses period-end balances rather than averages (some analysts prefer averages)
- Backward-looking: Historical data may not predict future performance
- Cross-industry comparison: Different industries have inherently different capital structures and margins
Frequently Asked Questions
DuPont Analysis is a framework for decomposing Return on Equity (ROE) into its component parts. The 3-factor model breaks ROE into Net Profit Margin, Asset Turnover, and Equity Multiplier. The 5-factor model further breaks this down to include Tax Burden and Interest Burden, providing deeper insight into what drives a company's ROE.
The 3-factor model uses: ROE = Profit Margin x Asset Turnover x Equity Multiplier.
The 5-factor model expands this to: ROE = Tax Burden x Interest Burden x Operating Margin x Asset Turnover x Equity Multiplier.
The 5-factor model provides additional insight into how taxes and interest expenses affect profitability, which is useful when comparing companies with different capital structures or tax situations.
Each component tells a different story about the company:
- Profit Margin: High margin suggests pricing power or cost efficiency
- Asset Turnover: High turnover indicates efficient asset utilization
- Equity Multiplier: Higher values indicate more leverage (debt), which amplifies both returns and risk
Compare these ratios across time or against competitors to identify strengths and areas for improvement.
ROE varies significantly by industry. Generally, 15-20% is considered good for most industries. However, what matters more is understanding the drivers of ROE through DuPont analysis.
A high ROE driven by excessive leverage may be riskier than a moderate ROE driven by operational efficiency. Always consider the sustainability and risk profile of the ROE components.
DuPont Analysis has several limitations:
- Relies on accounting data which can be affected by accounting choices and one-time items
- Uses point-in-time balance sheet figures rather than averages
- Does not account for the quality of earnings or future growth prospects
- May not be directly comparable across different industries
Always use DuPont analysis alongside other metrics for a complete picture.
Income Statement:
- Net Income and Revenue are clearly labeled
- EBIT is typically shown as "Operating Income" or calculated as Revenue minus Operating Expenses
- EBT is shown as "Income Before Taxes" or calculated as EBIT minus Interest Expense
Balance Sheet:
- Total Assets is the sum of all assets
- Shareholders' Equity (or Stockholders' Equity) is found in the equity section
Disclaimer
This calculator is for educational and informational purposes only. It is not financial advice. DuPont Analysis is one of many tools for evaluating companies and should be used alongside other financial metrics and qualitative analysis. Results depend on the accuracy of the input data. Always verify financial data from official sources and consult with qualified professionals for investment decisions.
