DuPont Analysis Calculator: 3-Step and 5-Step ROE

DuPont Analysis Calculator

Decompose return on equity (ROE) with the three-step or five-step DuPont formula. Review profitability, efficiency and financial leverage, then test an optional ROE target.

Formatting only; no exchange-rate conversion.
Income statement and averages
Use net income attributable to common shareholders for the selected period.
Prefer a representative period average.
Must be positive for conventional ROE decomposition.
Shows the net income required at the entered average equity.

DuPont analysis formulas

Three-step DuPont ROE = net profit margin × total asset turnover × equity multiplier.

  • Net profit margin = net income ÷ net revenue.
  • Total asset turnover = net revenue ÷ average total assets.
  • Equity multiplier = average total assets ÷ average common equity.

The factors cancel algebraically to net income ÷ average common equity, so the decomposed result must equal conventional ROE when the inputs use consistent definitions and periods.

Five-step DuPont ROE = tax burden × interest burden × operating margin × total asset turnover × equity multiplier. Tax burden = net income ÷ EBT; interest burden = EBT ÷ EBIT; operating margin = EBIT ÷ revenue. These three factors replace the single net-margin factor and still collapse to net income ÷ average equity.

Verified examples

Model and inputsComponentsROE
Three-step: $120,000 net income; $1,500,000 revenue; $1,000,000 average assets; $500,000 average equity8.00% margin × 1.5000 asset turnover × 2.0000 equity multiplier24.00%
Five-step: add $150,000 EBT and $200,000 EBIT0.8000 tax burden × 0.7500 interest burden × 13.3333% operating margin × 1.5000 × 2.000024.00%
Loss: −$50,000 net income; $1,000,000 revenue; $800,000 average assets; $400,000 average equity−5.00% margin × 1.2500 × 2.0000−12.50%

How to interpret the result

DuPont analysis separates ROE into drivers instead of treating it as one number. Net or operating margin describes profitability, asset turnover describes how much revenue the asset base produces, and the equity multiplier describes balance-sheet leverage. The five-step model further separates tax effects and financing effects.

A high ROE is not automatically favorable. It may come from stronger margins or asset use, but it can also reflect high leverage or a small equity base. Compare companies with similar business models, accounting policies and reporting periods, and inspect the underlying statements.

Input limits and assumptions

  • Monetary inputs must share one currency and reporting period, use no more than two decimal places and remain within ±1,000,000,000,000. Currency selection changes formatting only.
  • Revenue, average assets and average equity must be greater than zero. Net income may be positive, zero or negative.
  • For the five-step model, EBT and EBIT may be positive or negative but cannot be zero because their burden ratios would be undefined.
  • The target ranges from −1,000% to 1,000%. Required income assumes average equity is unchanged; it is not a forecast.
  • Average assets and equity should represent the income period. A simple beginning-and-ending average may be distorted by large intra-period changes.
  • Definitions can vary for preferred dividends, discontinued operations, minority interests and operating income. Use consistent figures and disclose adjustments.
  • This calculator does not evaluate solvency, normalize unusual items or provide investment, tax or accounting advice.

A five-step output can be mathematically correct while individual burden ratios are unusual because EBT or EBIT is negative. Inspect signs and the financial statements before interpreting a factor as operating improvement.

Frequently asked questions

What is the difference between three-step and five-step DuPont analysis?

The three-step model groups all effects inside net profit margin. The five-step model separates that margin into tax burden, interest burden and operating margin, then adds the same asset-turnover and leverage factors.

Why can DuPont ROE differ from a reported ROE?

Differences usually come from inconsistent periods, ending balances instead of averages, preferred dividends, different definitions of equity or income, rounding, or company-reported adjustments.

Can DuPont ROE be negative?

Yes. With positive average equity, a net loss produces negative ROE. The components help show whether the loss is associated with operating margin, financing, taxes or another accounting effect.

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