# DuPont Decomposition

`D18-F01-A01` · Fundamental Analysis and Valuation → Statement Ratios · archetype `record-transform` · difficulty 3/5 · verification **verified**

Full page: https://docs.thefintechbuilder.com/fundamental-analysis-and-valuation/statement-ratios/dupont-decomposition/
Agent skill: `npx skills add IslamBaraka90/Fintech-Algorithms-Library` — https://docs.thefintechbuilder.com/guides/agent-skill/

## Install and import

```bash
npm install fintech-algorithms
```

```ts
import { dupontDecomposition } from "fintech-algorithms/fundamental-analysis-and-valuation/statement-ratios/dupont-decomposition";
```

## Signature

```ts
dupontDecomposition(input)
```

Splits return on equity into net profit margin, asset turnover and equity multiplier, using period-average assets and equity as the denominators, and reports the gap between the three-factor product and return on equity taken directly as `net_income / average_equity`.

## Parameters

| Name | Type | Required | Notes |
| --- | --- | --- | --- |
| `input` | `{ net_income: number; revenue: number; beginning_assets: number; ending_assets: number; beginning_equity: number; ending_equity: number }` | yes | A plain object. Six keys are read and each must be a finite number: `net_income` and `revenue` form the margin, `beginning_assets` and `ending_assets` are averaged into the turnover denominator, and `beginning_equity` and `ending_equity` are averaged into the equity base. |

## Returns

`{ net_profit_margin: number | null; asset_turnover: number | null; equity_multiplier: number | null; dupont_roe: number | null; direct_roe: number | null; identity_gap: number | null; average_assets: number; average_equity: number; state: string; reason: string }`

`net_profit_margin`, `asset_turnover` and `equity_multiplier` multiply to `dupont_roe`; `direct_roe` divides net income by average equity and `identity_gap` is the difference between the two. `average_assets` and `average_equity` are always emitted. `state` is `calculated`, or `loss` when net income is negative, or `not-meaningful` when revenue is zero or either average is not positive — in that case the six ratio keys are `null` and `reason` joins the offending conditions with `+`, otherwise `reason` is `three-factor-identity-reconciles`.

## Errors

- When any of the six inputs is not a finite number — throws RangeError

## Complexity

Time `O(1)`, space `O(1)`.

## Worked example

This is the worked example published in the article, replayed by the test suite on every run. The output cannot drift.

### Input

`input`:

```json
{
  "net_income": 96,
  "revenue": 1200,
  "beginning_assets": 900,
  "ending_assets": 1100,
  "beginning_equity": 380,
  "ending_equity": 420
}
```

### Call

```ts
dupontDecomposition(input)
```

### Returns

object with 10 fields: net_profit_margin, asset_turnover, equity_multiplier, dupont_roe, direct_roe, identity_gap, average_assets, average_equity, …

```json
{
  "net_profit_margin": 0.08,
  "asset_turnover": 1.2,
  "equity_multiplier": 2.5,
  "dupont_roe": 0.24,
  "direct_roe": 0.24,
  "identity_gap": 0,
  "average_assets": 1000,
  "average_equity": 400,
  "state": "calculated",
  "reason": "three-factor-identity-reconciles"
}
```

## Other exports

`roicCalculation`, `cashConversionCycle`, `interestCoverageRatio`, `netDebtToEbitda`, `commonSizeStatements`, `calculate`. Every module additionally exports `run` as an alias of its primary
function, and a `meta` object carrying its catalog id, domain, family, shape and article URL.

## Verification and provenance

Tier: **verified** (via input-expected).

The worked example below is the figure published in this algorithm's article, replayed and asserted by the test suite on every build. The arithmetic cannot drift without the build failing.

Both tiers guarantee the signature. Full explanation: https://docs.thefintechbuilder.com/guides/verification/

Generated from the docs.json payload shipped inside fintech-algorithms@0.13.0.
The signature and parameter list are checked against the compiled implementation at build time,
so a description that contradicts the code fails the build rather than reaching this file.

## Links

- Article (how it works, step by step): https://thefintechbuilder.com/fundamental-analysis-and-valuation/statement-ratios/dupont-decomposition/
- Implementation source: https://github.com/IslamBaraka90/Fintech-Algorithms-Library/blob/main/src/fundamental-analysis-and-valuation/statement-ratios/dupont-decomposition/impl.ts
- Package on npm: https://www.npmjs.com/package/fintech-algorithms
- Domain index for agents: https://docs.thefintechbuilder.com/fundamental-analysis-and-valuation/llms.txt