Return on Equity = Assets Turnover x Profit Margin.

Name: Return on Equity = Assets Turnover x Profit Margin.
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Question

Quizplus · Accepted Answer

Return on Equity (ROE) is calculated as Net Income divided by Shareholder's Equity, not as the product of Asset Turnover and Profit Margin. Asset Turnover and Profit Margin are components of the DuPont Analysis, which breaks down ROE into three parts: Net Profit Margin, Asset Turnover, and Financial Leverage.

Return on Equity = Assets Turnover X Profit Margin