DuPont decomposition
What it measures¶
ROE — return on equity, net income divided by the owners' equity — is one number that hides where it comes from. The DuPont decomposition, first used at the DuPont company in the 1920s, splits it into five factors whose product is exactly the ROE:
| Factor | Formula | What it isolates |
|---|---|---|
| tax burden | net income ÷ pre-tax income | how much profit survives tax |
| interest burden | pre-tax income ÷ EBIT | how much survives interest (1.0 means the debt costs nothing) |
| EBIT margin | EBIT ÷ revenue | operating profit per unit of sales |
| asset turnover | revenue ÷ average total assets | sales from each unit of assets |
| equity multiplier | average total assets ÷ average total equity | leverage: assets per unit of the owners' money |
EBIT is earnings before interest and taxes — the operating profit.
Why it is on the page¶
The same ROE can come from a fat margin, from turning assets over fast, or from borrowing heavily — three very different businesses. The decomposition shows which factor does the work, and the page checks that the product of the five factors equals the ROE it computed directly, so a reader can trust the split.
Thresholds, their source and the population they were fitted on¶
The factors have no zones: each is a description, and what is normal depends on the industry. The one fixed test is arithmetic — the product must equal the directly computed ROE within 0.0001; the page shows the difference.
- Source: the DuPont identity, standard in financial-analysis textbooks (the five-factor form).
- Fitted on: no population — an accounting identity.
- Evidence grade: not graded.
A worked example¶
Celestica, as the Fundamentals page showed it on 9 August 2026 (fiscal year 2025): 0.85 × 0.95 × 0.08 × 1.88 × 3.21 = 40.49%, matching the direct ROE to within a rounding error. The reading: the return was not driven by margin (8%) but by turnover (1.88) and leverage (3.21) — a contract manufacturer earning its return by moving volume fast on a balance sheet carrying more assets than equity. A software company with the same ROE would split completely differently.
What “No verdict” means here¶
The decomposition carries no verdict; the panel header above it shows the verdict of Profitability & returns. A factor reads insufficient data — requires the prior period for the oldest year, which has no opening balances to average, and the product is then not shown.
What the verdict is and is not¶
The decomposition describes where one year's return on equity came from. It is not a judgement of which route is better, not a forecast, and not an instruction to trade the shares.