DuPont ROE Calculator
ROE split into margin, asset turnover, and leverage, so you can see which one is doing the work.
ROE is margin times turnover times leverage, and the three multiply back to it exactly. That is the point: two companies with the same ROE can be completely different businesses. Watch the equity multiplier, because it raises ROE without improving anything about the operation while raising risk. ROA is the same business before leverage, which is why comparing the two is the fastest way to see where the return is really coming from.
Worked example. $100 of net income on $1,000 of revenue, $800 of assets and $400 of equity. Net margin is 10%, asset turnover 1.25x, and the equity multiplier 2.0x. Multiply them and you get 25% ROE. Halve the equity to $200 and ROE doubles to 50%, while margin, turnover, and return on assets are all completely unchanged. The business did not improve; only the borrowing did.
Frequently asked questions
Why decompose ROE at all?
Because the headline number hides the mechanism. A luxury retailer and a grocery chain can both post 20% ROE, one on fat margins and slow turns, the other on thin margins and fast turns. Those are different businesses facing different risks, and the single figure conceals that.
What is a concerning equity multiplier?
It depends heavily on the industry. Above 3x deserves attention for most operating companies, while banks routinely run far higher because leverage is their business model. The question is always whether the returns compensate for the added fragility.
Should I use average or ending equity?
Averaging beginning and ending equity is more accurate when the balance sheet moved a lot during the year, which is common after a buyback or a raise. This calculator uses the single figure you enter, so supply an average if the year was eventful.
How does this relate to ROA?
Return on assets is margin times turnover, the business before leverage. ROE is ROA times the equity multiplier. Comparing the two is the quickest way to see how much of a company's return is borrowed.
Related tools
Calculators model hypothetical outcomes from the inputs you provide. They are informational only, not financial, investment, tax, or legal advice.