US CMA Part 2 · Chapter 2 · Question 3 of 15
Using the DuPont model, what is the return on equity of a company with a net profit margin of 6%, total asset turnover of 1.5 times and an equity multiplier (average assets / average equity) of 2.2?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: D) 19.8%
Explanation
DuPont ROE = net profit margin x asset turnover x equity multiplier = 6% x 1.5 x 2.2 = 19.8%. Net profit margin x asset turnover = 9.0% is return on assets; multiplying by the equity multiplier reflects the effect of financial leverage.
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