When determining the rate of return on assets:
A) return on assets is the product of three "drivers" according to the DuPont model.
B) the DuPont model calculates the rate of return as net profit margin times total asset turnover.
C) it is important for companies to develop strategies to decrease total asset turnover.
D) total asset turnover measures how much every sales dollar generates in profit.

Question

Quizplus · Accepted Answer

The DuPont model calculates the rate of return on assets as the product of net profit margin and total asset turnover. Option A is incorrect because the DuPont model does not have three "drivers." Option C is incorrect because strategies to decrease total asset turnover may not necessarily be beneficial for the company's profitability. Option D is incorrect because total asset turnover measures how efficiently a company uses its assets to generate sales, not how much profit is generated.

When Determining the Rate of Return on Assets