DuPont Analysis — Smart Financial Analysis
Deconstruct ROE into profit margin × asset turnover × financial leverage. See why Apple earns 156% ROE and Walmart 13%.
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DuPont analysis deconstructs Return on Equity (ROE) into three drivers: profit margin × asset turnover × financial leverage. The 3-factor model breaks ROE into Net Profit Margin × Asset Turnover × Financial Leverage. ROE = (Net Income / Revenue) × (Revenue / Total Assets) × (Total Assets / Equity). Profit margin (Net Income / Revenue) measures how much of each dollar in sales becomes profit.
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Why: DuPont analysis deconstructs Return on Equity (ROE) into three drivers: profit margin × asset turnover × financial leverage. It reveals WHY a company earns its ROE, not just wha...
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Financial Data
DuPont Decomposition (Margin × Turnover × Leverage)
Company Comparison Radar
ROE Breakdown (Doughnut)
Historical ROE Trend (Line)
For educational purposes only — not financial advice. Consult a qualified advisor before making decisions.
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DuPont analysis deconstructs ROE into three drivers: profit margin × asset turnover × financial leverage. Apple's 156% ROE looks incredible, but 5.68x leverage is doing the heavy lifting. Walmart's 1.8% margin seems terrible until you see 2.51x asset turnover — it sells fast. This calculator reveals WHY a company earns its ROE, not just what it is.
📚 Sources
The DuPont Equation
ROE = Net Profit Margin × Asset Turnover × Financial Leverage. Each component answers a different question: How profitable? How efficient? How leveraged?
Profit Margin
Net Income ÷ Revenue. High-margin businesses (tech, pharma) earn more per sale. Low-margin retailers compensate with volume and fast turnover.
Asset Turnover
Revenue ÷ Total Assets. Measures how efficiently assets generate sales. Walmart's 2.51x means $2.51 revenue per $1 of assets.
Financial Leverage
Total Assets ÷ Equity. Debt amplifies ROE but increases risk. Apple's 5.68x means significant debt relative to equity.
3-Factor vs 5-Factor DuPont
The 5-factor model splits profit margin into Tax Burden × Interest Burden × Operating Margin. Use it when tax or interest effects matter.
Industry Comparison
Compare companies within the same industry. Tech firms typically have high margins and moderate turnover; banks have high leverage; retailers have low margins and high turnover.
Interpreting Results
A rising ROE from leverage alone is riskier than from margin or turnover. Sustainable ROE comes from operational excellence, not just financial engineering.
Limitations
DuPont uses accounting numbers that can be manipulated. Compare across time and peers. Consider off-balance-sheet items and one-time charges.
Frequently Asked Questions
What is DuPont analysis?
DuPont analysis deconstructs Return on Equity (ROE) into three drivers: profit margin × asset turnover × financial leverage. It reveals WHY a company earns its ROE, not just what it is. Developed by DuPont Corporation in 1912.
What is the difference between 3-factor and 5-factor DuPont analysis?
The 3-factor model breaks ROE into Net Profit Margin × Asset Turnover × Financial Leverage. The 5-factor model further decomposes profit margin into Tax Burden × Interest Burden × Operating Margin, providing more granular insight into tax and financing effects.
How does ROE decomposition work?
ROE = (Net Income / Revenue) × (Revenue / Total Assets) × (Total Assets / Equity). Each component measures a different driver: profitability, operational efficiency, and financial leverage respectively.
What does profit margin impact in DuPont analysis?
Profit margin (Net Income / Revenue) measures how much of each dollar in sales becomes profit. High-margin companies like Apple (25%+) earn more per sale; low-margin retailers like Walmart (1.8%) compensate with high asset turnover.
What is asset turnover in DuPont analysis?
Asset turnover (Revenue / Total Assets) measures how efficiently a company uses its assets to generate sales. Walmart's 2.51x means it generates $2.51 in revenue per dollar of assets—retailers typically have high turnover; capital-intensive industries have lower turnover.
What is the financial leverage effect in DuPont analysis?
Financial leverage (Total Assets / Equity) amplifies ROE when a company uses debt. Apple's 5.68x leverage means heavy debt relative to equity—it boosts ROE but also increases risk. Higher leverage = more debt financing.
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