Question

    Which equation correctly represents 'DuPont Analysis:

    A ROE = Profit Margin x Asset Turnover Ratio x Equity Multiplier Correct Answer Incorrect Answer
    B ROA = Profit Margin x Net sales x Equity Multiplier Correct Answer Incorrect Answer
    C ROE = Profit Margin x Asset Turnover Ratio x Liabilities Turnover Correct Answer Incorrect Answer
    D ROA = Profit Margin x Asset Turnover Ratio x Liabilities Turnover Correct Answer Incorrect Answer
    E None of the above Correct Answer Incorrect Answer

    Solution

    According to DuPont analysis, ROE is affected by three things: operating efficiency, which is measured by profit margin; asset use efficiency, which is measured by total asset turnover; and financial leverage, which is measured by the equity multiplier.

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