Find out why a company's return on equity is high or low. Enter a few income statement and balance sheet figures to split ROE into profit margin, asset turnover and financial leverage, or into five drivers with the extended model, and see which one moved ROE since last year.
Last updated:
DuPont model
Income statement
$
$
After tax; can be negative.
$
Earnings before interest and taxes.
$
EBIT minus interest expense.
Balance sheet
$
Optional. Leave empty to use ending assets.
$
$
Optional. Leave empty to use ending equity.
$
Prior year (optional)
$
$
$
$
$
$
Enter your values to see the result.
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How to use the DuPont Analysis Calculator
Choose the model: 3-step for the classic breakdown or 5-step to separate taxes, interest and operating profit.
Enter the income statement: revenue and net income, plus EBIT and pre-tax income for the 5-step model.
Enter the balance sheet: total assets and shareholders' equity at the end of the year, and at the start if you want averages.
Optionally tick the prior-year box and enter last year's figures to see what drove the change.
Press Calculate ROE breakdown and read the drivers, the formula steps and the comparison table.
The DuPont formulas
3-step: ROE = (Net income ÷ Revenue) × (Revenue ÷ Average assets) × (Average assets ÷ Average equity)
Revenue, assets, EBIT and EBT cancel out in both chains, leaving net income ÷ equity, so the breakdown is an identity, not an estimate. Its value is in showing which lever produces the return:
Profitability (net margin, or tax burden × interest burden × operating margin): how much of each sale ends up as profit.
Efficiency (asset turnover): how much revenue the asset base generates.
Leverage (equity multiplier): how much of the assets are financed with other people's money.
Worked example (default inputs)
Driver
Calculation
Result
Tax burden
$165,000 ÷ $220,000
0.750
Interest burden
$220,000 ÷ $260,000
0.846
Operating margin
$260,000 ÷ $2,000,000
13.00%
Net profit margin (product of the three above)
$165,000 ÷ $2,000,000
8.25%
Asset turnover
$2,000,000 ÷ $1,600,000 average assets
1.250×
Equity multiplier
$1,600,000 ÷ $740,000 average equity
2.162×
ROE
8.25% × 1.250 × 2.162
22.30%
Reading the results
Rising ROE from a rising multiplier usually means more borrowing or share buybacks, not a better business. Check whether margin and turnover held up.
A falling interest burden (closer to 0) means interest costs are eating more of operating profit, often after new debt or higher rates.
Turnover is industry-specific: grocers and distributors often turn assets two or three times a year, while utilities and telecom companies may be well under 0.5×. Compare companies within the same industry.
Negative equity (possible after large buybacks or losses) makes ROE and the multiplier meaningless; analyse ROA and margins instead.
Frequently asked questions
What is DuPont analysis?
DuPont analysis is a way of splitting return on equity (ROE) into the ratios that produce it. The 3-step version is ROE = net profit margin × asset turnover × equity multiplier. It was developed at the DuPont company in the 1920s and is now a standard part of financial statement analysis.
What is the 5-step DuPont formula?
The extended model splits net profit margin further: ROE = tax burden (net income ÷ EBT) × interest burden (EBT ÷ EBIT) × operating margin (EBIT ÷ revenue) × asset turnover (revenue ÷ assets) × equity multiplier (assets ÷ equity). The product is the same ROE as the 3-step model.
How do I interpret the equity multiplier?
The equity multiplier is total assets divided by shareholders' equity. A value of 2 means half the assets are funded by liabilities; 4 means three-quarters. A higher multiplier raises ROE when the business is profitable but also magnifies losses, so a high ROE driven mostly by leverage is riskier than one driven by margin or turnover.
Should I use average or ending balances?
Average balances, (beginning + ending) ÷ 2, match a full year of income against the assets and equity that were in place during that year, which is the usual textbook approach. Use ending balances only when beginning figures are not available, and use the same choice for every year you compare.
What does a tax burden of 0.75 mean?
It means the company keeps 75% of its pre-tax income after income taxes, so its effective tax rate is 25%. An interest burden of 0.85 similarly means interest expense consumes 15% of operating profit (EBIT).
Why does my DuPont ROE differ from reported ROE?
Reported figures may use ending equity, exclude preferred dividends or non-controlling interests, or annualize partial-year results. Use the same definitions for every input. When the inputs are consistent, the product of the DuPont drivers always equals net income ÷ average equity.
How is the change in ROE attributed to each driver?
The calculator uses logarithmic attribution: each driver's share of the ROE change is the change in ROE × ln(new ÷ old driver) ÷ ln(new ÷ old ROE). The shares add up exactly to the total change. It needs all drivers to be positive in both years; otherwise only the before and after values are shown.
Are all the tools on FreeToolCabin tested for quality and accuracy?
Yes! Every tool on our site undergoes automated Q/A testing in real browser environments to ensure high precision, correct output, and zero errors. If you happen to spot a bug or have a suggestion, please contact us at [email protected] and our team will review it right away.