A company has return on assets of 10%.Return on sales are 5%.The leverage ratio is 2.0.Following DuPont analysis,what is return on equity?
A)5%
B)10%
C)20%
D)25%

Question

Quizplus · Accepted Answer

Return on equity (ROE) can be calculated by multiplying return on assets (ROA) by leverage ratio (LR) which is then multiplied by return on sales (ROS). Therefore:

ROE = ROA x LR x ROS
ROE = 10% x 2 x 5%
ROE = 20%

Therefore, the answer is option C: 20%.

A Company Has Return on Assets of 10