DuPont equation: Sorenstam Corp has an equity multiplier of 2.34 times, total assets of $4,512,895, a ROE of 17.5 percent, and a total assets turnover of 3.1 times. Calculate the company's ROA.
A) 6.23%
B) 4.53%
C) 7.48%
D) 5.79%

Question

Quizplus · Accepted Answer

The DuPont equation relates ROE, ROA, and the equity multiplier: ROE = ROA * Equity Multiplier. Rearranging gives ROA = ROE / Equity Multiplier. Thus, ROA = 17.5% / 2.34 = 7.48%.

DuPont Equation: Sorenstam Corp Has an Equity Multiplier of 2