DuPont Analysis
Perform a Dupont analysis to breakdown the return on equity (ROE) into its components.
The Dupont analysis is a method used to dissect and understand the factors that drive a company’s return on equity (ROE). It breaks down the ROE into three key components: Net Profit Margin, Asset Turnover, and Equity Multiplier.
The formula is as follows:
\[\text{Net Profit Margin} = \text{Net Income} / \text{Revenue}\] \[\text{Asset Turnover} = \text{Revenue} / \text{Average Total Assets}\] \[\text{Equity Multiplier} = \text{Average Total Assets} / \text{Average Total Equity}\] \[\text{ROE} = \text{Net Profit Margin} \cdot \text{Asset Turnover} \cdot \text{Equity Multiplier}\]The value of the decomposition is in comparing the three factors with peers and over time: a retailer earns its return on equity through asset turnover, a software company through its margin and a bank through leverage. A rising return on equity driven only by the Equity Multiplier, for example through share buybacks that shrink equity, is of lower quality than one driven by margin or turnover, and with negative equity the decomposition stops being meaningful.
Also known as: DuPont, ROE decomposition, three-factor DuPont.
DuPont Analysis in Python or via the MCP
Install the Finance Toolkit with:
pip install financetoolkit -U
Then call get_dupont_analysis as shown below.
from financetoolkit import Toolkit
toolkit = Toolkit(
["GOOGL"],
api_key="FINANCIAL_MODELING_PREP_KEY",
start_date="2021-01-01",
end_date="2025-12-31",
)
toolkit.models.get_dupont_analysis()
Or, after setting up the Finance Toolkit MCP, ask:
What drove Alphabet's return on equity from 2021 to 2025, according to a DuPont analysis?
Which returns:
| 2021 | 2022 | 2023 | 2024 | 2025 | |
|---|---|---|---|---|---|
| Net Profit Margin | 0.2951 | 0.212 | 0.2401 | 0.286 | 0.3281 |
| Asset Turnover | 0.759 | 0.7807 | 0.8009 | 0.821 | 0.7706 |
| Equity Multiplier | 1.4317 | 1.4269 | 1.4228 | 1.4013 | 1.4122 |
| Return on Equity | 0.3207 | 0.2362 | 0.2736 | 0.3291 | 0.357 |
Parameters
get_dupont_analysis accepts the following parameters.
| Parameter | Type | Description | Example |
|---|---|---|---|
rounding | int | None | The number of decimals to round the results to. Defaults to None, which uses the rounding of the Toolkit (4 unless set otherwise). | 2 |
growth | bool | Whether to calculate the growth of the values. Defaults to False. | True |
lag | int | list[int] | The lag to use for the growth calculation. Defaults to 1. | 4 |
standardize | bool | Whether to standardize (Z-Score) the result. When combined with growth=True, standardizes the growth values instead of the raw values. Defaults to False. | True |
trailing | int | None | The trailing period to use for the calculation. Defaults to None. | 4 |
show_columns | list[str] | None | Restrict the result to these columns. Defaults to None, which shows all columns. | ["Net Profit Margin", "Return on Equity"] |