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DuPont Analysis Calculator
Enter any stock ticker to decompose ROE into net profit margin, asset turnover, and financial leverage. See which factor is driving returns — and whether that source of ROE is sustainable or a leverage-fuelled mirage.
What is DuPont Analysis?
DuPont analysis breaks return on equity (ROE) into three multiplicative components: net profit margin, asset turnover, and financial leverage. Two companies can both report 20% ROE while being fundamentally different businesses — one earns it through high margins, the other through aggressive debt. DuPont reveals which.
What makes ROE high quality?
Margin-driven ROE is the most durable — it reflects pricing power and operational efficiency. Turnover-driven ROE (common in retail) is also healthy. Leverage-driven ROE is a warning sign: a highly indebted company can show strong ROE until interest rates rise or credit conditions tighten. Check the debt-to-equity ratio and interest coverage alongside this analysis.
The DuPont Formula
ROE = Net Profit Margin × Asset Turnover × Financial Leverage
Net Profit Margin = Net Income ÷ Revenue
Measures how much of each revenue dollar survives as profit after all costs, interest, and taxes. A high and rising margin signals pricing power and cost discipline — the most durable driver of ROE.
Asset Turnover = Revenue ÷ Total Assets
Measures how efficiently assets generate revenue. Retailers and distributors post high turnover (1.5–3×); software and capital-heavy manufacturers sit lower. Turnover-driven ROE is healthy in asset-light models.
Financial Leverage = Total Assets ÷ Equity
Measures how much of the balance sheet is funded by debt rather than equity. Above 4–5× is elevated. Leverage boosts ROE when times are good — but amplifies losses in downturns and raises refinancing risk.
Why DuPont beats a simple ROE screen
Two companies with 18% ROE can be fundamentally different businesses. One earns it with 20% margins and minimal debt; the other runs on 6× leverage and thin margins. DuPont forces you to see which story you're actually buying.
Sector ROE Benchmarks
| Sector | Median ROE | Primary Driver |
|---|---|---|
| Technology | 25% | Margin |
| Consumer Staples | 22% | Margin + Leverage |
| Consumer Discretionary | 22% | Turnover |
| Communication Services | 18% | Margin |
| Industrials | 17% | Turnover |
| Healthcare | 16% | Margin |
| Energy | 14% | Margin |
| Materials | 13% | Turnover |
| Financials | 12% | Leverage |
| Utilities | 10% | Leverage |
| Real Estate | 8% | Leverage |
How to Interpret DuPont Results
Margin-driven ROE: the quality signal
If net profit margin is the dominant component, the business earns its returns through pricing power and operational efficiency. This type of ROE is the most durable — it doesn't depend on borrowed money or volume heroics. Consumer brands with moats (Coca-Cola, Visa) are classic examples.
Turnover-driven ROE: healthy in the right model
High asset turnover is the hallmark of efficient retail and distribution businesses. Walmart, for example, generates modest margins but turns its asset base over many times per year. Pair with margin trends: if margins are shrinking while turnover rises, the business may be sacrificing profitability for volume.
Leverage-driven ROE: proceed with caution
If leverage is the primary ROE driver, look harder at debt levels. Check the interest coverage ratio (EBIT ÷ interest expense) and the debt-to-equity ratio. Leverage-fuelled ROE can evaporate when rates rise or credit conditions tighten.
Pair with ROIC for the full picture
ROE is affected by leverage; ROIC is not. A company with high ROE but low ROIC is likely using debt to flatter equity returns rather than generating genuine economic profit. Strong compounders score well on both metrics.
Frequently asked questions
What is DuPont analysis?
DuPont analysis breaks return on equity (ROE) into three multiplicative factors: net profit margin (Net Income ÷ Revenue), asset turnover (Revenue ÷ Total Assets), and financial leverage (Total Assets ÷ Equity). Because ROE = Margin × Turnover × Leverage, two companies with identical ROEs can be fundamentally different — one earns it through pricing power, the other through debt. DuPont reveals which.
Is margin-driven or leverage-driven ROE better?
Margin-driven ROE is the most durable because it reflects genuine pricing power and cost discipline — it doesn't rely on borrowed money and doesn't collapse when credit conditions tighten. Turnover-driven ROE is also healthy, especially in capital-light or retail business models. Leverage-driven ROE is the riskiest: a downturn or rate rise can rapidly erode the equity base. Always check interest coverage alongside a high-leverage ROE.
What is a good ROE?
Context matters by sector. A 25% ROE is normal for software; a 10% ROE is competitive for utilities. As a general benchmark, sustained ROE above 15% indicates strong economic returns. More important than the level is the source: 15% ROE earned through margin is far more attractive than 15% earned through 8× leverage. Use this calculator to see which driver is at work.
How does DuPont analysis differ from ROE?
ROE gives you a single number. DuPont analysis tells you why that number is what it is. Two companies at 18% ROE might look equivalent on a screener, but one achieves it with 20% net margins and minimal debt while the other relies on 6× leverage and thin margins. DuPont makes these structural differences visible so you can assess sustainability.
What data does this calculator use?
The calculator pulls the most recent annual income statement and balance sheet from Yahoo Finance via the yahoo-finance2 library. Net income, revenue, total assets, and stockholders' equity come from these filings. Results reflect trailing twelve months or the most recent fiscal year reported.
How does financial leverage affect ROE?
Financial leverage (Total Assets ÷ Equity) amplifies ROE in both directions. A leverage ratio of 4× means the company has four times as many assets as equity — most of the balance sheet is funded by debt. This multiplies returns when times are good but also multiplies losses in a downturn. Companies with leverage above 5× warrant close scrutiny of interest coverage and debt maturity schedules.