Using the DuPont system of analysis and holding other factors constant, an increase in the net profit margin will result in ________ in the return on equity.
A) an increase
B) a decrease
C) no change
D) an undetermined change

Question

Quizplus · Accepted Answer

The DuPont system of analysis states that Return on Equity (ROE) is equal to Net Profit Margin multiplied by Asset Turnover multiplied by Financial Leverage. Holding the other factors constant, if there is an increase in the Net Profit Margin, it will directly increase the ROE as well. Thus, the correct answer is A) an increase.

Using the DuPont System of Analysis and Holding Other Factors