Using the Du Pont Identity Method, calculate return on equity given the following information. Proﬁt margin 16%; total asset turnover 0.85; equity multiplier 1.5.
A) 20.40%
B) 21.40%
C) 22.40%
D) 23.40%
E) 24.40%

Question

Quizplus · Accepted Answer

The Du Pont Identity calculates return on equity (ROE) as the product of profit margin, total asset turnover, and equity multiplier. ROE = 0.16 * 0.85 * 1.5 = 0.204 or 20.40%.

Using the Du Pont Identity Method, Calculate Return on Equity