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A DuPont analysis breaks the return on equity into which three components?
ACurrent ratio, quick ratio, and inventory turnover
BProfit margin, total asset turnover, and financial leverage
CGross margin, profit margin, and dividend yield
DSales, net income, and total equity
Answer & Solution
Correct answer: B. Profit margin, total asset turnover, and financial leverage
1. DuPont analysis = profit margin × total asset turnover × financial leverage.
2. = (net income / sales) × (sales / average total assets) × (total assets / total equity).
3. It isolates which component is driving or dragging the current ROE.
_Source: Jonick, Principles of Financial Accounting (CC BY-SA 4.0), §7.3.4 "DuPont Analysis", p.310_
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