The DuPont formula is:
A) Return on Assets x Asset Turnover (Asset Utilization)
B) Profit Margin (Return on Sales) x Asset Turnover (Asset Utilization)
C) Return on Equity x Debt-to-Equity Ratio
D) Return on Investment x Debt-to-Equity Ratio
E) None of the above

Question

Quizplus · Accepted Answer

The DuPont formula, also known as the DuPont identity, breaks down Return on Equity (ROE) into three parts: Profit Margin, Asset Turnover, and Financial Leverage. However, the specific combination mentioned in option B, Profit Margin x Asset Turnover, actually calculates the Return on Assets (ROA), not ROE directly. This is a common misunderstanding. The full DuPont formula for ROE involves Profit Margin, Asset Turnover, and Equity Multiplier (not directly mentioned in the options provided). Option B is the closest to a component of the DuPont analysis, focusing on operational efficiency and profitability, but it specifically describes ROA, not the full DuPont model for ROE.

The DuPont Formula Is