The Du Pont system of analyzing return ratios is useful in breaking down the return on equity into:
A) net profit margin and total asset turnover.
B) net profit margin, total asset turnover, and equity multiplier.
C) net profit margin, total asset turnover, and debt-equity ratio.

Question

Quizplus · Accepted Answer

The Du Pont system of analyzing return ratios breaks down the return on equity (ROE) into three components: net profit margin, total asset turnover, and equity multiplier. This approach helps in understanding how a company's profitability, asset management, and financial leverage contribute to its overall return on equity.

The Du Pont System of Analyzing Return Ratios Is Useful