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Charley's Swipe File #71

The DuPont Formula is one of the best-known methods for calculating a company's Return On Equity (ROE), one of the most critical measures of financial performance. This dashboard uses data over the past twelve months to show how your ROE is calculated.

by Charley Kyd, MBA
Microsoft Excel MVP, 2005-2014
The Father of Spreadsheet Dashboard Reports

The DuPont DashboardIf you have a financial, background, you’ve probably heard about the DuPont formula, which calculates Return On Equity (ROE).

The formula can be expressed in several ways:

ROE = (Profit Margin)*(Assets Turnover)* (Leverage Multiplier)

ROE = (Net Profit/Sales)*(Sales/Assets)* (1 + Debt/Equity)

ROE = (Net Profit/Equity)

This formula, in its various forms, shows how to calculate the key measure of financial performance, ROE.

The ROE compares directly with your growth rate in sales. If you grow faster than your ROE, you weaken your financial structure; if you grow more slowly than your ROE, you strengthen your financial structure. (However, companies that pay dividends must reduce their ROE by their dividend payout ratio for this to be true.)

Unfortunately, the formula can be rather confusing for non-financial managers to understand. Therefore, I created this DuPont Dashboard to map out how a company’s current ROE is calculated. You can create the report monthly to document your ROE generated over the prior 12 months of performance.

Excel Issues

This is an unusual chart, because I created it entirely in a worksheet. The white boxes are cells and the black lines typically are borders. The formulas in the report rely extensively on the OFFSET function, which has this format:

(Continued in the documentation.)

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