DuPont Analysis Calculator

We have prepared this DuPont analysis calculator to help you understand the relationship between the ROE (return on equity) and its components. The DuPont analysis involves breaking down the ROE and understanding what contributes to it.

With this calculator, we have also written this article to help you understand what DuPont analysis is and how to calculate it using the DuPont equation. Moreover, we have also prepared some DuPont analysis examples to assist you in grasping the concept.

DuPont's analysis formula, also known as the DuPont framework or DuPont equation, is a useful investing technique to analyze a company's competitiveness. It allows you to decompose a company's return on equity (ROE) into several powerful financial ratios to help you understand the company's underlying strengths. The ratios include:

• Net profit margin;
• Total asset turnover; and
• Financial leverage.

The DuPont analysis formula allows you to break down a company's ROE into three components: profitability, operational efficiency, and financial leverage. This allows you to understand how the company generates value for its shareholders.

Please check out our net profit margin calculator and degree of operating leverage calculator to understand more on this topic.

Read on to see the equation our DuPont ROE calculator is based on.

Without further ado, let's look at a DuPont analysis example.

You can find the main DuPont formula below:

ROE = NPM × TAT × FL

where:

• ROE — Return on equity;
• NPM — Net profit margin;
• TAT — Total asset turnover; and
• FL — Financial leverage.

DuPont analysis, or the ROE DuPont formula, can be seen as a formula and a relationship between ROE and its components. Now, let's take a deep dive into the DuPont Analysis.

The DuPont analysis calculator allows us to understand the relationship between four important financial ratios, namely:

• Return on equity (ROE);
• Net profit margin;
• Total asset turnover; and
• Financial leverage.

These ratios can be calculated using 4 inputs:

• Sales;
• Net income;
• Total assets; and
• Total equity.

You can use our net income calculator and sales calculator to facilitate the calculation.

Here are some DuPont analysis examples:

1. Calculate the return on equity (ROE).

   The relationship of ROE can be demonstrated using DuPont formula:

   ROE = NPM × TAT × FL

   where:

   • NPM = net profit / revenue

   • TAT = revenue / total assets

   • FL = total assets / total shareholder's equity

   The ROE can also be calculated as:

   ROE = net income / total equity

   ROE is defined as net income over common shareholders' equity. It represents the value the company can create for its shareholders.

2. Calculate net profit margin.

   The relationship of NPM within the DuPont analysis is shown below:

   NPM = ROE / (TAT × FL)

   The NPM can also be calculated as:

   NPM = net income / sales

   NPM is one of the components of ROE in DuPont analysis. A high NPM indicates that the company is generating value based on its profitability.

3. Calculate total asset turnover.

   The relationship of TAT within the DuPont analysis is shown below:

   TAT = ROE / (NPM × FL)

   The TAT can also be calculated as:

   TAT = sales / total assets

   TAT is another component of ROE in DuPont analysis. As TAT measures the company's operational efficiency, a high TAT means that the company is generating value by being more efficient than its peers.

4. Calculate financial leverage.

   Finally, the relationship of FL within the DuPont analysis is shown below:

   FL = ROE / (NPM × TAT)

   The FL can also be calculated as:

   FL = total assets / total equity

   FL is the last component of ROE in DuPont analysis. FL measures how much assets are financed by liabilities rather than equity. A high FL naturally means that the company is generating value by taking on higher risks.

As you can see, the DuPont identity formula we use in the DuPont ROE calculator can be used in a variety of ways, providing useful information.

Since we have understood what DuPont analysis is and the DuPont framework, now it is time to talk about how to interpret the DuPont model.

DuPont's analysis calculation is one of the best ways to understand and analyze the company's competitiveness in the industry. DuPont analysis allows you to break down ROE into the net profit margin, total asset turnover, and financial leverage. It allows you to analyze three scenarios:

• According to the DuPont model, if the ROE is driven by a high net profit margin, it means that the return is driven mainly through profitability.

• If the ROE is driven by high total asset turnover, it indicates that the company is high in operational efficiency. Hence, it allows the company to save more costs.

• If the ROE is driven by high financial leverage, the company is acquiring a higher return on equity by taking on more debt and risks. The DuPont framework states that a high ROE driven by high financial leverage might not be sustainable.