The DuPont equation shows that a firm's (return on equity) ROE is determined by three factors:
A) net profit margin, total asset turnover, and the equity multiplier.
B) operating profit margin, return on assets (ROA), and the total assets turnover.
C) net profit margin, total asset turnover, the return on assets (ROA).
D) return on assets (ROA), total assets turnover, and the equity multiplier.

Question

Quizplus · Accepted Answer

The DuPont equation is a tool used to analyze the return on equity (ROE) by breaking it down into three components: net profit margin, total asset turnover, and the equity multiplier. Therefore, the correct choice is A, which lists the three factors that make up the DuPont equation. B and C are incorrect because they do not include the equity multiplier, while D is incorrect because it does not include the net profit margin.

The DuPont Equation Shows That a Firm's (Return on Equity)