DuPont analysis indicates that the return on equity may be boosted above the return on assets by using leverage (debt).

Question

Quizplus · Accepted Answer

DuPont analysis shows that the return on equity (ROE) can be increased by increasing financial leverage, which in turn increases the asset turnover ratio and/or the net profit margin. The use of debt can magnify profits and returns to shareholders, but it also increases financial risk.

DuPont Analysis Indicates That the Return on Equity May Be