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In the Dupont system of analysis, the return on equity is equal to ____ .

a. (return on total assets) times (total asset turnover)
b. (return on total assets) times (financial leverage multiplier)
c. (net profit margin) times (total asset turnover)
d. (stockolders' equity) times (financial leverage multiplier)

Respuesta :

Answer:

b. (return on total assets) times (financial leverage multiplier)

Explanation:

We use the DuPont Analysis formula which is presented below i

ROE = Net Profit margin × Total assets turnover × financial leverage multiplier

where,

Net profit margin = (Net profit) ÷ (Sales) × 100

Total assets turnover =  (Sales) ÷ (Total assets) × 100

And, the financial leverage multiplier would be

= (Assets) ÷ (Equity)

If we equate these formulas, then

= (Net profit) ÷  (Total assets) × (Assets) ÷ (Equity)

which equal to

= (Return on total assets) × (financial leverage multiplier)

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