Return on equity (ROE) using the traditional DuPont formula equals to A. (net profit margin) (interest component) (solvency ratio) B. (net profit margin) (interest component) (liquidity ratio)
Return on equity (ROE) using the traditional DuPont formula equals to A. (net profit margin) (interest component) (solvency ratio) B. (net profit margin) (interest component) (liquidity ratio)
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
Return on equity (ROE) using the traditional DuPont formula equals to
A.
(net profit margin) (interest component) (solvency ratio)
B.
(net profit margin) (interest component) (
C.
(net profit margin) (total asset turnover) (quick ratio)
D.
(net profit margin) (total asset turnover) (solvency ratio)
Expert Solution
Step 1
DuPont analysis is used to calculate the ROE in a categorised way.
ROE is basically Net income / Average Total equity
But DuPont formula is used to bifurcate the components to have better understanding of the return on equity.
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