Answer first
What this calculator tells you
Break return on equity into profit margin, asset turnover and financial leverage. Find out whether high returns come from margin, efficiency or borrowing. Formula: ROE = net profit margin × asset turnover × equity multiplier = (net income ÷ revenue) × (revenue ÷ assets) × (assets ÷ equity). At the worked-example inputs, the return on equity is 30.0%. Holding every other input steady, moving net income from $144,000 to $216,000 moves the result from 24.0% to 36.0%.
Transparent method
The formula
Find out whether high returns come from margin, efficiency or borrowing.
Worked example
Example inputs
How to interpret the result
The DuPont breakdown splits return on equity into three separate levers: how much profit each sale keeps, how hard the assets work, and how much borrowing sits behind them. With a 7.5 percent margin, an asset turnover of 2 and an equity multiplier of 2, the return on equity is 30 percent. Two firms with the same 30 percent can get there by very different routes, and the routes carry different risks.
At the worked-example inputs the return on equity is 30.0%. It rises with net income and falls as shareholders' equity increases; revenue and total assets do not move it.
These are planning metrics, not audited accounting or a valuation opinion.
Before you rely on it
What to check
Look at which lever is doing the work. A return driven mostly by the equity multiplier rests on borrowing and is more fragile.
The common error
Where people go wrong with dupont analysis calculator
Comparing return on equity alone. A firm that reached 30 percent through heavy debt is not equal to one that reached it through high margins.
Sensitivity evidence
How net income changes the return on equity
Holding every other input at the worked-example value, moving net income from $144,000 to $216,000 moves the return on equity from 24.0% to 36.0%: a spread of 12.0%, or 40% of the worked-example result.
| Net income | Return on equity | Net profit margin | Asset turnover | Equity multiplier |
|---|---|---|---|---|
| $144,000 | 24.0% | 6.0% | 2.00× | 2.00× |
| $162,000 | 27.0% | 6.8% | 2.00× | 2.00× |
| $180,000worked example | 30.0% | 7.5% | 2.00× | 2.00× |
| $198,000 | 33.0% | 8.3% | 2.00× | 2.00× |
| $216,000 | 36.0% | 9.0% | 2.00× | 2.00× |
Every input, tested
Which input moves the return on equity most
Of the 4 inputs, net income moves the return on equity most (6.0% across the range tested) and shareholders' equity moves it least (6.1%). Revenue and total assets do not change it at all.
| Input | Tested from | To | Return on equity at each end | Swing |
|---|---|---|---|---|
| Net income | $162,000 | $198,000 | 27.0% to 33.0% | 6.0% (20%) |
| Shareholders' equity | $540,000 | $660,000 | 33.3% to 27.3% | 6.1% (20%) |
| Revenue | $2,160,000 | $2,640,000 | 30.0% to 30.0% | none |
| Total assets | $1,080,000 | $1,320,000 | 30.0% to 30.0% | none |
Two variables at once
Return on equity by net income and shareholders' equity
Across the grid the return on equity runs from 20.0% to 45.0%. Moving net income from $144,000 to $216,000 shifts it by 12.0% at the middle column, and moving shareholders' equity from $480,000 to $720,000 shifts it by 12.5% at the middle row, so shareholders' equity is the bigger lever here.
| Net income \ Shareholders' equity | $480,000 | $600,000 | $720,000 |
|---|---|---|---|
| $144,000 | 30.0% | 24.0% | 20.0% |
| $162,000 | 33.8% | 27.0% | 22.5% |
| $180,000 | 37.5% | 30.0% | 25.0% |
| $198,000 | 41.3% | 33.0% | 27.5% |
| $216,000 | 45.0% | 36.0% | 30.0% |
The highlighted cell is the worked example: 30.0%.
Step by step
The worked example, input by input
| Input | Value used | What it means |
|---|---|---|
| Net income | $180,000 | Enter the net income used in this calculation. |
| Revenue | $2,400,000 | Enter the revenue used in this calculation. |
| Total assets | $1,200,000 | Enter the total assets used in this calculation. |
| Shareholders' equity | $600,000 | Enter the shareholders' equity used in this calculation. |
| Return on equity | 30.0% | |
| Net profit margin | 7.5% | |
| Asset turnover | 2.00× | |
| Equity multiplier | 2.00× | |
Inputs, definitions and assumptions
Net income
Enter the net income used in this calculation. The prefilled worked-example value is $180,000.
Revenue
Enter the revenue used in this calculation. The prefilled worked-example value is $2,400,000.
Total assets
Enter the total assets used in this calculation. The prefilled worked-example value is $1,200,000.
Shareholders' equity
Enter the shareholders' equity used in this calculation. The prefilled worked-example value is $600,000.
How to use this calculator
- 1Verify the inputs. Gather net income, revenue, total assets and shareholders' equity from your own documents; the prefilled values are examples.
- 2Save a baseline. The worked example puts the return on equity at 30.0%. Store your own version of it as Scenario A.
- 3Test one change. Start with net income, the input with the biggest effect here: moving net income from $162,000 to $198,000 takes the return on equity from 27.0% to 33.0%, a swing of 20% of the worked-example figure.
- 4Check the extremes. At half the example net income ($90,000) the return on equity is 15.0%; at double ($360,000) it is 60.0%.
People also ask
Frequently asked questions
How do you calculate dupont analysis?
ROE = net profit margin × asset turnover × equity multiplier = (net income ÷ revenue) × (revenue ÷ assets) × (assets ÷ equity). Enter net income in dollars, revenue in dollars, total assets in dollars and shareholders' equity in dollars. At the worked-example inputs the return on equity is 30.0%.
What does the dupont analysis result mean?
Find out whether high returns come from margin, efficiency or borrowing. At the worked-example inputs the return on equity is 30.0%. It rises with net income and falls as shareholders' equity increases; revenue and total assets do not move it.
How much does net income change the return on equity?
Holding every other input at the worked-example value, moving net income from $144,000 to $216,000 moves the return on equity from 24.0% to 36.0%, a spread of 12.0%.
What are the limits of this dupont analysis calculator?
These are planning metrics, not audited accounting or a valuation opinion. The tables on this page test net income only from $144,000 to $216,000; a value outside that range is not tabulated here.
Which input moves the return on equity most in the dupont analysis calculator?
Ranked by how far each moves the return on equity across the range tested: net income (6.0%, 20%) and shareholders' equity (6.1%, 20%). Revenue and total assets do not change it.
If I double net income in the dupont analysis calculator, does the return on equity double?
Doubling it from $180,000 to $360,000 takes the return on equity from 30.0% to 60.0%, which is 2.00 times the worked-example figure. So the result scales almost exactly in proportion. Halving it to $90,000 gives 15.0%.
How much does revenue matter in the dupont analysis calculator?
The worked example uses $2,400,000. The return on equity does not depend on revenue; it moves the net profit margin from 8.3% to 6.8% instead when revenue goes from $2,160,000 to $2,640,000.
How much does total assets matter in the dupont analysis calculator?
The worked example uses $1,200,000. The return on equity does not depend on total assets; it moves the asset turnover from 2.22× to 1.82× instead when total assets goes from $1,080,000 to $1,320,000.
How much does shareholders' equity matter in the dupont analysis calculator?
The worked example uses $600,000. With the other inputs left at the worked example, moving shareholders' equity from $540,000 to $660,000 takes the return on equity from 33.3% to 27.3%, a swing of 20% of the worked-example figure.
Which inputs change the net profit margin in the dupont analysis calculator?
At the worked-example inputs it is 7.5%. Net income takes it from 6.8% to 8.3% and revenue takes it from 8.3% to 6.8%.
Which inputs change the asset turnover in the dupont analysis calculator?
At the worked-example inputs it is 2.00×. Revenue takes it from 1.80× to 2.20× and total assets takes it from 2.22× to 1.82×.
Which inputs change the equity multiplier in the dupont analysis calculator?
At the worked-example inputs it is 2.00×. Total assets takes it from 1.80× to 2.20× and shareholders' equity takes it from 2.22× to 1.82×.
What is customer acquisition cost?
The sales and marketing spending in a period divided by the number of new customers won in it. Compare it with the margin a customer brings over time to see whether growth pays for itself.
Sources and evidence
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