Dupont Formula Calculator

Formula

The Dupont Formula to calculate the Return on Equity (ROE) is:

$\text{ROE} = \left( \frac{\text{Net Income}}{\text{Total Revenue}} \right) \times \left( \frac{\text{Total Revenue}}{\text{Total Assets}} \right) \times \left( \frac{\text{Total Assets}}{\text{Equity}} \right)$

Where:

Net Income is the company’s total earnings or profit.
Total Revenue is the total income generated from sales.
Total Assets is the sum of all assets owned by the company.
Equity is the value of the company provided by shareholders.

What is the Dupont Formula?

The Dupont Formula is a financial analysis tool used to calculate a company’s Return on Equity (ROE). It breaks down ROE into three components:

Profit Margin: How much profit is generated from sales.
Asset Turnover: How efficiently assets are used to generate revenue.
Equity Multiplier: How much the company relies on debt versus equity.

By analyzing these components, the Dupont Formula provides insight into the factors contributing to a company’s ROE and helps identify areas of operational strength and weakness.

Example Calculation

Consider the following example:

Net Income: $50,000
Total Revenue: $200,000
Total Assets: $500,000
Equity: $250,000

Using the formula:

$\text{ROE} = \left( \frac{50,000}{200,000} \right) \times \left( \frac{200,000}{500,000} \right) \times \left( \frac{500,000}{250,000} \right) = 0.25 \times 0.4 \times 2 = 0.20 \text{ or } 20\%$

This means the Return on Equity (ROE) is 20%.