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 breaks down return on equity into three parts: operating efficiency (measured by profit margin), asset use efficiency (measured by total asset turnover), and financial leverage (measured by the equity multiplier). This helps in understanding the drivers behind a company's return on equity.

The ___________ Breaks Down Return on Equity into Three Component