The Du Pont identity can be used to help managers answer which of the following questions related to a firm's operations?
I.How many sales dollars has the firm generated per each dollar of assets?
II.How many dollars of assets has a firm acquired per each dollar in shareholders' equity?
III.How much net profit is a firm generating per dollar of sales?
IV.Does the firm have the ability to meet its debt obligations in a timely manner?
A)I and III only
B)II and IV only
C)I, II, and III only
D)II, III and IV only
E)I, II, III, and IV

Question

Quizplus · Accepted Answer

The Du Pont identity, also known as the Du Pont analysis, helps managers to understand how effectively the firm is using its assets, equity, and debt to generate profits. Specifically, it breaks down the Return on Equity (ROE) into three components: Net profit margin (measures how much profit the firm generates for each dollar of sales), Asset turnover (measures how efficiently the firm uses its assets to generate sales), and Financial leverage (measures how much debt the firm uses to finance its operations). Therefore, it can be used to answer questions related to sales generation per dollar of assets, asset acquisition per dollar of equity, net profit per dollar of sales, and debt obligations.

The Du Pont Identity Can Be Used to Help Managers