DuPont analysis

DuPont analysis decomposes return on investment into two multiplicative components: return on sales multiplied by asset turnover.

Also known asDuPont

ByHoang TruongUpdated June 30, 2026

FrameworkDuPont analysis

See it move

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The tree diagram decomposes ROI into two multiplicative branches connected by a multiplication operator: return on sales (operating profit divided by revenue) and asset turnover (revenue divided by invested capital). The same ROI figure can therefore arise from a high-margin, low-turnover strategy or from a low-margin, high-turnover one, and improving either branch independently will lift the root. The structure makes explicit that a manager diagnosing weak ROI must determine which lever — profitability or asset efficiency — is responsible.

Where it fits

SubjectManagerial AccountingAdvancedTopicDivisional Performance MeasurementAdvanced

The formula

LaTeX

\text{ROI} = \underbrace{\frac{\text{Operating Income}}{\text{Revenue}}}_{\text{ROS}} \times \underbrace{\frac{\text{Revenue}}{\text{Invested Capital}}}_{\text{Asset Turnover}}

Variables

$R O S$: Return on sales = Operating Income ÷ Revenue
$A sse tT u r n o v er$: Revenue ÷ Invested Capital

Revenue cancels, leaving Operating Income ÷ Invested Capital; splitting it exposes the two improvement levers

Check yourself

PracticeCORE

Division Kappa reports a return on sales of 4% and an asset turnover of 2.5 times. Division Lambda reports a return on sales of 10% and an asset turnover of 1.0 times. Which statement most accurately reflects the DuPont comparison of the two divisions?

Select an answer to check your understanding.