In the DuPont system, the return on equity is equal to
A) (net profit margin) × (total asset turnover).
B) (stockholders' equity) × (financial leverage multiplier).
C) (return on total assets) × (financial leverage multiplier).
D) (return on total assets) × (total asset turnover).

Question

Quizplus · Accepted Answer

The DuPont model is ROE = (Net profit margin x Total asset turnover x Financial leverage multiplier) or ROE = (Return on total assets x Financial leverage multiplier). Therefore, the correct answer is C, since it multiplies the return on total assets by the financial leverage multiplier.

In the DuPont System, the Return on Equity Is Equal