In ratio analysis, DuPont identity decomposes ROE

DuPont decomposes ROE Net profitSales SalesAssets AssetsEquity.

into:

A Profit margin × Asset turnover × Financial leverage (Equity multiplier) Correct Answer Incorrect Answer

B Current ratio × Quick ratio × Debt ratio Correct Answer Incorrect Answer

C Gross profit × Net profit × Operating profit Correct Answer Incorrect Answer

D Inventory turnover × Receivables turnover × Payables turnover Correct Answer Incorrect Answer

E ROA × Tax rate × Depreciation Correct Answer Incorrect Answer

Solution

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

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