Return on equity can be decomposed into:
A) the sum of return on assets and the equity multiplier.
B) the product of return on assets and the equity multiplier.
C) the product of the profit margin and the equity multiplier.
D) the sum of the profit margin and the equity multiplier.
E) the sum of the profit margin, equity multiplier, and the interest ratio.

Question

Quizplus · Accepted Answer

Return on equity (ROE) can be decomposed into the product of return on assets (ROA) and the equity multiplier, according to the DuPont analysis. This decomposition helps in understanding the different factors that contribute to the ROE.

Return on Equity Can Be Decomposed Into