Chapter 3, Problem 7CRCT

Summary Introduction

To think critically about: The reason for considering DuPont identity as a precious tool for performance evaluation of the company and the kind of information it discloses, compared to return on equity.

Introduction:

The return on equity is a profitability measurement that computes how many dollars of profit a firm could generate with every dollar of shareholders equity. It is the net income returned as a part of the equity of the shareholders.

The DuPont identity is a ratio system that is utilized to evaluate the financial performance of a firm. Such ratio systems include return on asset, return on equity, total asset turnover, profit margin, and equity multiplier.