The ___________ breaks down return on equity into three component parts: operating eﬃciency of the ﬁrm, its asset use eﬃciency, and ﬁnancial leverage.
A) Du Pont identity
B) Return on assets
C) Statement of cash ﬂows
D) Asset turnover ratio
E) Equity multiplier

Question

Quizplus · Accepted Answer

The Du Pont identity is a financial ratio that breaks down return on equity (ROE) into three components: operating efficiency, asset use efficiency, and financial leverage. Therefore, option A is the best choice. Option B (return on assets) only measures the profitability of a company's assets, and options C, D, and E are not related to breaking down ROE into its components.

The ___________ Breaks Down Return on Equity into Three Component