The three parts of the Du Pont identity can be generally described as:
I.operating efficiency,asset use efficiency and firm profitability.
II.financial leverage,operating efficiency and asset use efficiency.
III.the debt-equity ratio,the capital intensity ratio and the profit margin.
IV.the equity multiplier,the profit margin and the total asset turnover.
A)I and II only
B)II and III only
C)I and IV only
D)II and IV only
E)III and IV only

Question

Quizplus · Accepted Answer

The Du Pont identity formula is ROE (Return on Equity) = Net Profit Margin x Total Asset Turnover x Equity Multiplier. The three parts of this formula are financial leverage (equity multiplier), operating efficiency (net profit margin), and asset use efficiency (total asset turnover). Therefore, the correct answer is II (financial leverage), IV (equity multiplier and total asset turnover).

The Three Parts of the Du Pont Identity Can Be