The net income is $100, sales are $200, total assets are $500, and total equity is $300. According to the DuPont system of financial ratio analysis, ROE is about 33.33%.

Question

Quizplus · Accepted Answer

ROE (Return on equity) is calculated by multiplying net income margin (net income/sales) by total asset turnover (sales/total assets) and then multiplying the result by financial leverage (total assets/total equity).
ROE = Net Income Margin x Total Asset Turnover x Financial Leverage
ROE = ($100/$200) x ($200/$500) x ($500/$300) = 0.5 x 0.4 x 1.67 = 0.3333 or 33.33%
Therefore, the given statement is True.

The Net Income Is $100, Sales Are $200, Total Assets