Question
A company has Net Sales of ₹1,000 lakhs, Net Profit of
₹80 lakhs, Total Assets of ₹750 lakhs, and Equity of ₹250 lakhs. Calculate Return on Equity (ROE) using the DuPont formula and identify the major driver of profitability.Solution
ROE = (Net Profit / Sales) × (Sales / Assets) × (Assets / Equity) = (80/1000) × (1000/750) × (750/250) = 0.08 × 1.33 × 3 = 31.92 ≈ 32% High leverage (2× equity) is the key multiplier → Option C
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