The Du Pont identity is defined as the:
A) Profit margin times the total asset turnover times the equity multiplier.
B) Profit margin times the inventory turnover times the equity multiplier.
C) Return on equity times the profit margin times the total asset turnover.
D) Return on equity times the total asset turnover times the equity multiplier.
E) Return on assets times the total asset turnover times the profit margin.

Question

Quizplus · Accepted Answer

The Du Pont identity breaks down Return on Equity (ROE) into three important components: profit margin (net income divided by sales), total asset turnover (sales divided by total assets), and the equity multiplier (total assets divided by total equity). This formula shows how a company's profitability, asset management, and financial leverage contribute to its ROE.

The Du Pont Identity Is Defined as The