DuPont Analysis (3-Step)

DuPont Analysis
Updated Apr 2026 • Has calculator

Decomposes Return on Equity into three drivers: net profit margin, asset turnover, and financial leverage.

What is DuPont 3-Step?

The 3-Step DuPont Analysis breaks Return on Equity (ROE) into three multiplicative components: Net Profit Margin (how much profit per dollar of sales), Asset Turnover (how much sales per dollar of assets), and the Equity Multiplier (how much assets are financed by equity versus debt). This decomposition reveals whether a company's ROE improvement comes from higher margins, more efficient asset use, or increased leverage — critical information that a single ROE figure hides. It was developed by the DuPont Corporation in the 1920s.

Formula

ROE = Net Profit Margin × Asset Turnover × Equity Multiplier

Worked Example

Worked example — Microsoft Corp. (MSFT)

FY2024

Step 1  Net Profit Margin = $88,136M ÷ $245,122M = 35.96%
Step 2  Asset Turnover = $245,122M ÷ $462,070M = 0.530x
Step 3  Equity Multiplier = $462,070M ÷ $237,350M = 1.947x
Step 4  ROE = 35.96% × 0.530 × 1.947 = 37.12%
Step 5  → Microsoft's high ROE is driven primarily by its exceptional profit margins (36%), not leverage

Source: Microsoft 10-K FY2024 (2024-07-30)

Calculate DuPont 3-Step

Net income in millions of USD

Total annual revenue in millions of USD

Average of beginning and ending total assets, in millions of USD

Average of beginning and ending shareholders' equity, in millions of USD

ROE (DuPont)

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Not investment advice.

How to Interpret DuPont 3-Step

< 10
Low ROE — thin margins, low turnover, or minimal leverage
10 – 20
Average — typical for established companies
20 – 35
Strong — high quality business with efficient capital use
> 35
Exceptional — superior margins, turnover, or leverage mix

📚 Return Metrics — Complete the path

  1. ROA
  2. ROIC
  3. DuPont 3-Step
  4. BVPS
  5. Altman Z-Score
Sources
  1. Damodaran, A. — Investment Valuation, 3rd ed., Ch. 4
  2. Investopedia — DuPont Analysis