In the DuPont system, the return on total assets (asset) is equal to
A) (return on equity) × (financial leverage multiplier).
B) (return on equity) × (total asset turnover).
C) (net profit margin) × (fixed asset turnover).
D) (net profit margin) × (total asset turnover).

Question

Quizplus · Accepted Answer

The DuPont system formula for calculating the return on total assets (asset) is (net profit margin) × (total asset turnover). Option D is the only one that reflects this formula. Option A is incorrect because it multiplies the return on equity by the financial leverage multiplier, which does not give the return on total assets. Option B uses return on equity instead of net profit margin, which is incorrect. Option C uses fixed asset turnover instead of total asset turnover, which is also incorrect.

In the DuPont System, the Return on Total Assets (Asset)