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    Question

    In ratio analysis, DuPont identity decomposes ROE

    into:
    A Profit margin Γ— Asset turnover Γ— Financial leverage (Equity multiplier) Correct Answer Incorrect Answer
    B Current ratio Γ— Quick ratio Γ— Debt ratio Correct Answer Incorrect Answer
    C Gross profit Γ— Net profit Γ— Operating profit Correct Answer Incorrect Answer
    D Inventory turnover Γ— Receivables turnover Γ— Payables turnover Correct Answer Incorrect Answer
    E ROA Γ— Tax rate Γ— Depreciation Correct Answer Incorrect Answer

    Solution

    DuPont decomposes ROE = (Net profit/Sales) Γ— (Sales/Assets) Γ— (Assets/Equity).

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