DuPont Analysis Calculator

ROE:

NPM:

TAT:

FL:

1. What is DuPont Analysis Calculator?

Definition: This calculator computes ROE and its components (NPM, TAT, FL) using the DuPont formula.

Purpose: Helps analyze a company’s profitability, efficiency, and leverage to assess shareholder value creation.

2. How Does the Calculator Work?

The calculator uses these formulas:

ROE:

$ ROE = \frac{NI}{TE} $

$ ROE = NPM \times TAT \times FL $

Where:

$ NI $: Net Income (dollars)
$ TE $: Total Equity (dollars)

NPM:

$ NPM = \frac{NI}{R} $

$ NPM = \frac{ROE}{TAT \times FL} $

Where:

$ R $: Revenue (dollars)

TAT:

$ TAT = \frac{R}{TA} $

$ TAT = \frac{ROE}{NPM \times FL} $

Where:

$ TA $: Total Assets (dollars)

FL:

$ FL = \frac{TA}{TE} $

$ FL = \frac{ROE}{NPM \times TAT} $

Steps:

Enter net income, revenue, total assets, and total equity.
Calculate ROE, NPM, TAT, and FL.
Display results with 2 decimal places.

3. Importance of DuPont Analysis

Calculating DuPont components is crucial for:

Profitability: Assesses how efficiently revenue turns into profit (NPM).
Efficiency: Evaluates asset use effectiveness (TAT).
Leverage: Measures risk from debt financing (FL).

4. Using the Calculator

Example 1: NI = $100,000, R = $500,000, TA = $1,000,000, TE = $400,000:

$ NPM = \frac{100,000}{500,000} = 20.00\% $
$ TAT = \frac{500,000}{1,000,000} = 0.50 $
$ FL = \frac{1,000,000}{400,000} = 2.50 $
$ ROE = 20.00 \times 0.50 \times 2.50 = 25.00\% $
Result: ROE = 25.00%, NPM = 20.00%, TAT = 0.50, FL = 2.50

Example 2: NI = $50,000, R = $200,000, TA = $800,000, TE = $300,000:

$ NPM = \frac{50,000}{200,000} = 25.00\% $
$ TAT = \frac{200,000}{800,000} = 0.25 $
$ FL = \frac{800,000}{300,000} = 2.67 $
$ ROE = 25.00 \times 0.25 \times 2.67 = 16.68\% $
Result: ROE = 16.68%, NPM = 25.00%, TAT = 0.25, FL = 2.67

5. Frequently Asked Questions (FAQ)

Q: What does a high ROE indicate?
A: A high ROE may reflect strong profitability, efficiency, or leverage, but excessive leverage could signal risk.

Q: Why use DuPont analysis?
A: It breaks down ROE to identify specific areas (NPM, TAT, FL) driving performance or risks.

Q: Can FL be too high?
A: Yes, a high FL indicates heavy debt, increasing bankruptcy risk if not managed properly.