Financial Statement Analysis
 Ratio Analysis of Financial Statements (Formula, Types, Excel)
 Ratio Analysis
 Liquidity Ratios
 Turnover Ratios
 Profitability Ratios
 Profit Margin
 Gross Profit Margin Formula
 Operating Profit Margin Formula
 Net Profit Margin Formula
 EBIDTA Margin
 Earnings Per Share
 Basic EPS
 Diluted EPS
 Basic EPS vs Diluted EPS
 Return on Equity (ROE)
 Return on Capital Employed (ROCE)
 Return on Invested Capital (ROIC)
 Return on Total Assets (ROA)
 Return on Average Capital Employed
 Capital employed Employed
 Return on Average Assets (ROAA)
 Return on Average Equity (ROAE)
 Return on Assets Formula
 Return on Equity Formula
 DuPont Formula
 Net Interest Margin Formula
 Earnings Per Share Formula
 Diluted EPS Formula
 Contribution Margin Formula
 Revenue Per Employee Ratio
 Operating Leverage
 EBIT vs EBITDA
 EBITDAR
 Capital Gains Yield
 Tax Equivalent Yield
 LTM Revenue
 Operating Expense Ratio Formula
 Overhead Ratio Formula
 Capacity Utilization Rate Formula
 Total Expense Ratio Formula
 Efficiency Ratios
 Dividend Ratios
 Debt Ratios
 Debt to Equity Ratio
 Debt Coverage Ratio
 Debt Ratio
 Debt to Income Ratio Formula (DTI)
 Capital Gearing Ratio
 Capitalization Ratio
 Interest Coverage Ratio
 Times Interest Earned Ratio
 Debt Service Coverage Ratio (DSCR)
 Financial Leverage Ratio
 Net Debt Formula
 Leverage Ratios
 Operating Leverage vs Financial Leverage
 Current Yield
 Debt Yield Ratio
DuPont Formula for ROE
In the 1920s, DuPont Corporation came up with a formula called DuPont ROE formula. This formula helps us understand Return on Equity (ROE) in detail.
Here’s the formula of Return on Equity as per the DuPont Corporation –
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DuPont Formula Example
Here’s a simple DuPont formula example to illustrate DuPont ROE formula.
Sutra Co. has the following information –
 Net Income of the year – $50,000
 Revenues of the year – $300,000
 Total Assets of the company – $900,000
 Shareholders’ Equity – $150,000
Using the DuPont ROE formula, we get –
 Return on Equity = Profit Margin * Total Asset Turnover * Leverage Factor
 Or, Dupont ROE = Net Income / Revenues * Revenues / Total Assets * Total Assets / Shareholders’ Equity
 Or, Dupont ROE = $50,000 / $300,000 * $300,000 / $900,000 * $900,000 / $150,000
 Or, Dupont ROE = 1/6 * 1/3 * 6 = 1/3 = 33.33%.
If we directly find out the Return on Equity, we will get –
 Return on Equity = Net Income / Shareholdezrs’ Equity
 Or, ROE = $50,000 / $150,000 = 1/3 = 33.33%.
Dupont ROE for Colgate
In the DuPont formula example below, we calculate the Dupont ROE of Colgate.
 Net Income is taken after the minority shareholder’s payment. Therefore, shareholder’s equity consists of only the common shareholder’s of Colgate (not including the minority holders)
 Asset turnover has been declining over the past 78 years. In addition, Colgate’s profit margins have also declined over the past 56 years
 However, Return on Equity has not shown a declining trend. It is increasing overall.
 This is because of the Equity Multiplier (total assets / total equity). We note that the Equity Multiplier has shown a steady increase over the past 5 years and is currently stands at 30x.
Explanation of DuPont Formula
If we break down this formula, we will be able to make sense of how it works.
 First component of the formula is the net profit margin. If we look at the formula of profit margin, it would be – Net Income / Revenues
 Second component of the formula is total asset turnover. If we look at the formula of total asset turnover, it would be – Revenues / Total Assets
 Third component in the above formula is Equity Multiplier. If we look into the formula of leverage factor, we would get – Total Assets / Shareholders’ Equity.
Now, if we put these three components as DuPont Corporation determined, we will get –
 Return on Equity = Profit Margin * Total Asset Turnover * Leverage Factor
 Or, Return on Equity = Net Income / Revenues * Revenues / Total Assets * Total Assets / Shareholders’ Equity
The magic of this particular formula is, when we multiply these three, ultimately we get – Net Income / Shareholders’ Equity.
However, if we look at each, we would be able to understand total four ratios together.
 First, we will get to know what the profitability of the company is.
 Second, we will be able to understand how efficiently the company has been utilizing its assets.
 Third, how much leverage a company has been getting.
 Fourth, we will also understand the return on equity overall.
In return on equity formula, we are not only including common shares, we are also taking preferred shares, dividends into account.
Shareholders’ equity means we will take the whole statement and the total figure at the end.
Use of DuPont Formula
Every investor needs to be thorough with the financial ratios before ever investing in any company.
 DuPont formula will help them save time and effort. And simultaneously, they would be able to understand how efficiently a company is utilizing its resources and how leveraged the company is.
 ROE definitely throws light on the proportion between net income and the shareholders’ equity; it doesn’t allow us to understand how much profitability a firm has, how the firm has been utilizing its assets etc.
 With DuPont formula, you can calculate all. All you need to do is to look into the income statement, the balance sheet, and the shareholders’ equity statement.
DuPont ROE Calculator
You can use the following DuPont ROE Calculator
Net Income  
Shareholders' Equity  
Return on Equity Formula =  
Return on Equity Formula = 


DuPont in Excel (with excel template)
Let us now do the same DuPont formula example above in Excel. This is very simple. You need to provide the two inputs of Net Income, Total Assets, Revenues and Shareholders’ Equity.
You can easily calculate the ratio in the template provided.
If we directly find out the ROE, we will get –
You can download this DuPont template here – DuPont Excel Template
Recommended Articles
This has been a guide to Dupont formula, its uses along with practical DuPont formula example. Here we also provide you with Dupont ROE Calculator with downloadable excel template. Learn more from the following articles on Financial Ratios
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