In the DuPont formula, return on assets equals:
A) Gross margin on sales × Inventory turnover.
B) Profit margin on sales × Inventory turnover.
C) Gross margin on sales × Asset turnover.
D) Profit margin on sales × Asset turnover.

Question

Quizplus · Accepted Answer

The DuPont formula breaks down return on assets into two components: profit margin on sales (net income divided by total revenue) and asset turnover (total revenue divided by total assets). Multiplying these two components gives us the return on assets. Therefore, the correct answer is choice D: Profit margin on sales × Asset turnover.

In the DuPont Formula, Return on Assets Equals