What Is DuPont Analysis?
DuPont analysis decomposes return on equity (ROE) into three drivers: ROE = Net Margin × Asset Turnover × Equity Multiplier (leverage). It reveals whether a high (or low) ROE comes from profitability, asset efficiency, or debt. Two firms with the same ROE can be of completely different quality.
6 min read
How to read
- Net margin (Net Income ÷ Sales): pricing power and cost control.
- Asset turnover (Sales ÷ Total Assets): how efficiently assets generate sales.
- Equity multiplier (Assets ÷ Equity): leverage; the higher it is, the more it inflates ROE and risk.
- Whichever box is highest drives ROE — quality ROE comes from margin/turnover, not leverage.
Threshold ranges
- Margin-drivenPricing power/brand — usually the highest quality
- Turnover-drivenOperational efficiency — healthy in retail/distribution
- Leverage-drivenA high multiplier inflates ROE — fragile, be careful
Watch out for
- A high equity multiplier (debt) artificially boosts ROE; on the way down the same leverage magnifies losses.
- ROE and the multiplier can be meaningless for firms with negative equity (from buybacks).
- Look at a 3-5 year trend rather than a single period; the direction of components matters more than the level.
Sector note
Banks and retail are structurally different: banks run on high leverage, retail on low margin-high turnover. Always compare ROE against peers in the same sector.
Try on live data
See these metrics on real US stocks: