DuPont analysis is a way of splitting return on equity (ROE) into three parts so you can see where it comes from. ROE equals net profit margin times asset turnover times the equity multiplier. Net profit margin is net income divided by revenue, which shows how much profit the company keeps from each dollar of sales. Asset turnover is revenue divided by total assets, which shows how many dollars of sales each dollar of assets produces. The equity multiplier is total assets divided by shareholders' equity, which shows how much of the business is paid for with borrowed money. Two companies can show the same ROE for very different reasons, and this split makes the difference visible.
Worked example
Company A has revenue of $1,000,000, net income of $80,000, total assets of $800,000 and shareholders' equity of $400,000. Net profit margin = $80,000 ÷ $1,000,000 = 8%. Asset turnover = $1,000,000 ÷ $800,000 = 1.25. Equity multiplier = $800,000 ÷ $400,000 = 2. ROE = 8% × 1.25 × 2 = 20%, which matches $80,000 ÷ $400,000 = 20%. Now take Company B with the same assets and equity but revenue of $4,000,000 and the same $80,000 of net income: margin 2%, turnover 5, multiplier 2, ROE = 2% × 5 × 2 = 20%. Same ROE, two very different businesses: A earns a high margin on modest sales, B earns a thin margin on a lot of sales.
Why it matters
A high ROE can mean a genuinely profitable business, a business that sells a lot for every dollar of assets, or simply one that has borrowed heavily, and ROE alone cannot tell these apart. DuPont analysis can. A rising multiplier with a flat margin and flat turnover, for example, means the ROE is going up because of more debt, which is a question to look into, not a sign of better operations. The figures come from the income statement (revenue, net income) and the balance sheet (total assets, equity) in the annual report. Typical levels differ a lot by industry, so compare the three parts with similar companies and with the same company's earlier years, and treat any reading as a question to look into, not a verdict.
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Frequently asked questions
ROE = net profit margin × asset turnover × equity multiplier. In words: net income ÷ revenue, times revenue ÷ total assets, times total assets ÷ shareholders' equity. The revenue and total assets cancel out, which is why the product equals net income ÷ equity.
It is total assets divided by shareholders' equity. A multiplier of 2 means every dollar of the owners' money supports two dollars of assets, so the other dollar is financed by borrowing or other liabilities. The higher it is, the more the ROE depends on debt.
Revenue and net income are on the income statement, and total assets and shareholders' equity are on the balance sheet, all in the company's annual report. Use the same year for all four.
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Built & maintained by Worthmap · Last updated November 1, 2026
Educational use only. This tool provides estimates for informational purposes and does not constitute financial, investment, tax, or legal advice. Results are based on inputs you provide and mathematical models, they do not guarantee future performance. Always consult a qualified financial adviser before making investment decisions.