The DuPont system merges the income statement and balance sheet into two summary measures ofprofitability:
A) return on total assets and return on equity.
B) net profit margin and return on equity.
C) net profit margin and price/earning ratio.
D) net profit margin and return on total assets.

Question

Quizplus · Accepted Answer

The DuPont system combines the income statement and balance sheet to calculate two summary measures of profitability: return on total assets (ROTA) and return on equity (ROE). Therefore, the best choice is A, which includes both ROTA and ROE. Option B includes net profit margin which is a profitability ratio calculated from the income statement, but does not include ROTA. Option C includes the price/earnings ratio, which is a market valuation ratio and not a profitability ratio. Option D includes net profit margin, but not ROE.

The DuPont System Merges the Income Statement and Balance Sheet