The DuPont method decomposes return on equity into
A) return on assets and the debt ratio.
B) return on assets and the equity multiplier.
C) operating income and inventory turnover.
D) net profit margin and fixed asset turnover.

Question

Quizplus · Accepted Answer

The DuPont method decomposes return on equity into two components: return on assets (net income divided by total assets) and the equity multiplier (total assets divided by total equity). Therefore, option B, which includes both return on assets and the equity multiplier, is the correct choice. Option A only includes return on assets and the debt ratio (not the equity multiplier), while options C and D include unrelated metrics.

The DuPont Method Decomposes Return on Equity into