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Return on Equity (ROE) & DuPont Analysis

For informational and educational purposes only • Not investment advice.

Apple

iPhone, services, devices

Return on Equity

119.9%

Net Profit Margin: 27.6%

Equity Multiplier: 3.56x

DuPont Analysis explains Return on Equity by separating it into profitability, asset efficiency, and financial leverage.

DuPont Breakdown

Net Profit Margin
27.6%
Asset Turnover
1.22x
Equity Multiplier
3.56x
ROE
119.9%

Key ROE Metrics

Notes

• ROE is above 20%, indicating that the company currently generates a relatively high level of earnings compared with its shareholders' equity.
• The Equity Multiplier is relatively high, meaning financial leverage contributes materially to the company's ROE.

What is ROE and DuPont Analysis?

Return on Equity (ROE) measures how much profit a company generates relative to the capital provided by its shareholders. A higher ROE means the company generates more earnings for each dollar of Shareholders' Equity.

ROE alone does not explain why the return is high or low. DuPont Analysis decomposes ROE into three components: profitability, asset efficiency, and financial leverage. This helps identify the underlying drivers of shareholder returns.

A strong ROE driven by high profit margins and efficient use of assets can indicate strong operating economics. By contrast, a high ROE driven mainly by a high Equity Multiplier indicates that financial leverage contributes significantly to the reported return.

How DuPont Analysis Works

DuPont Analysis separates Return on Equity into profitability, asset efficiency and financial leverage to show what is driving the company's return to shareholders.

Measure Profitability
→
Measure Asset Efficiency
→
Measure Financial Leverage
→
Calculate ROE

DuPont ROE Formula

ROE=Net IncomeRevenue⏟Net Profit Margin×RevenueTotal Assets⏟Asset Turnover×Total AssetsShareholders’ Equity⏟Equity Multiplier \text{ROE} = \underbrace{ \frac{\text{Net Income}}{\text{Revenue}} }_{\text{Net Profit Margin}} \times \underbrace{ \frac{\text{Revenue}}{\text{Total Assets}} }_{\text{Asset Turnover}} \times \underbrace{ \frac{\text{Total Assets}}{\text{Shareholders' Equity}} }_{\text{Equity Multiplier}}

Key Model Assumptions

• Shareholders' Equity is represented by the company's Book Value.
• Positive Shareholders' Equity, Revenue and Total Assets are required for the DuPont decomposition.
• Net Income and Revenue are based on trailing twelve-month (TTM) results when available; otherwise, the latest annual values are used.
• Total Assets and Shareholders' Equity are based on the latest available balance sheet values.
• ROE can increase because of stronger profitability, more efficient use of assets, or greater financial leverage.
• A high ROE driven primarily by a high Equity Multiplier may reflect greater financial leverage rather than stronger operating performance.
• ROE should therefore be interpreted together with the individual DuPont components rather than as a standalone measure of business quality.

Step 1 — Measure Profitability

Net Profit Margin = Net Income / Revenue
Net Profit Margin = $128.9B / $466.8B = 27.6%

Net Profit Margin measures how much of each dollar of revenue remains as profit after expenses. The model uses trailing twelve-month (TTM) Net Income and TTM Revenue. For Apple, Net Income of $128.9B divided by Revenue of $466.8B produces a Net Profit Margin of 27.6%.

Step 2 — Measure Asset Efficiency

Asset Turnover = Revenue / Total Assets
Asset Turnover = $466.8B / $383.3B = 1.22x

Asset Turnover measures how efficiently Apple uses its assets to generate revenue. The model uses trailing twelve-month (TTM) Revenue of $466.8B and Total Assets of $383.3B, resulting in an Asset Turnover of 1.22x.

Step 3 — Measure Financial Leverage

Equity Multiplier = Total Assets / Shareholders' Equity
Equity Multiplier = $383.3B / $107.5B = 3.56x

The Equity Multiplier measures the relationship between Apple's asset base and Shareholders' Equity. Total Assets of $383.3B divided by Shareholders' Equity of $107.5B produces an Equity Multiplier of 3.56x. A higher Equity Multiplier generally indicates greater financial leverage and can increase ROE.

Step 4 — Calculate Return on Equity

ROE = Net Profit Margin × Asset Turnover × Equity Multiplier
ROE = 27.6% × 1.22x × 3.56x = 119.9%

DuPont Analysis combines Apple's Net Profit Margin of 27.6%, Asset Turnover of 1.22x, and Equity Multiplier of 3.56x. Together, these components produce a Return on Equity of 119.9%. The decomposition helps show whether the company's shareholder return is primarily driven by profitability, asset efficiency, or financial leverage.