Author Question: Which statement regarding the Du Pont analysis is correct? (Read 7 times)

ksmithunr · **on:** Aug 7, 2023

Which statement regarding the Du Pont analysis is correct?

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Suppose a firm’s total assets turnover ratio falls from 1.5 to 1.2, but at the same time its profit margin rises from 8% to 11% and its debt increases from 50% of total assets to 70%. Without additional information, we cannot tell what will happen to the ROE.

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Suppose a firm’s total assets turnover ratio falls from 1.5 to 1.2, but at the same time its profit margin rises from 8% to 11% and its debt increases from 50% of total assets to 70%. Under these conditions, the ROE will increase.

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Suppose a firm’s total assets turnover ratio falls from 1.5 to 1.2, but at the same time its profit margin rises from 8% to 11% and its debt increases from 50% of total assets to 70%. Under these conditions, the ROE will decrease.

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The modified DuPont equation provides information about how operations affect the ROE, but the equation does not include the effects of debt on the ROE.

ekattan2 · **Reply #1 on:** Aug 7, 2023

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