The DuPont equation shows that a firm's ROE is determined by three factors:

Question

Quizplus · Accepted Answer

The DuPont equation states that a firm's ROE (return on equity) is determined by three factors: net profit margin (net income divided by sales), total asset turnover (sales divided by total assets), and the equity multiplier (total assets divided by total equity). Therefore, option A is correct as it includes all three correct factors involved in the DuPont equation. Option B is incorrect as operating profit margin is not a part of the DuPont equation, and ROA and ROE are interrelated. Option C is incorrect as it does not include the equity multiplier, which is a crucial factor in the DuPont equation. Option D is incorrect as it includes only two factors out of the three involved in the DuPont equation.

The DuPont Equation Shows That a Firm's ROE Is Determined