1. What is the DuPont Formula?

The DuPont formula, also known as the DuPont analysis, is a framework for analyzing fundamental performance popularized by the DuPont Corporation. The formula breaks down Return on Equity (ROE) into three components: Profit Margin (PM %), Asset Turnover (AT), and Equity Multiplier (EM).

2. How Does the Calculator Work?

The calculator uses the DuPont formula:

Where:

• \( PM \% \) — Profit Margin percentage
• \( AT \) — Asset Turnover ratio
• \( EM \) — Equity Multiplier

Explanation: The formula decomposes ROE to show how much of it comes from profitability (PM %), efficiency (AT), and leverage (EM).

3. Importance of ROE Calculation

Details: ROE is a key measure of a company's profitability and efficiency in generating returns for shareholders. The DuPont analysis helps identify which factors are driving a company's ROE performance.

4. Using the Calculator

Tips: Enter profit margin as a percentage, asset turnover as a ratio, and equity multiplier as a multiplier. All values must be valid positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What is a good ROE percentage?
A: Generally, an ROE of 15-20% is considered good, but this varies by industry. It's best to compare with industry averages and historical performance.

Q2: How is profit margin calculated?
A: Profit Margin = Net Income / Revenue. It shows what percentage of revenue becomes profit.

Q3: What does asset turnover indicate?
A: Asset Turnover = Revenue / Average Total Assets. It measures how efficiently a company uses its assets to generate sales.

Q4: What is the equity multiplier?
A: Equity Multiplier = Total Assets / Shareholders' Equity. It indicates the degree of financial leverage a company is using.

Q5: Why use DuPont analysis instead of simple ROE?
A: DuPont analysis provides deeper insights by breaking down ROE into its components, helping identify the specific drivers of performance and areas for improvement.