Give the DuPont model formula for computing (a) rate of return on total assets (ROA) and (b)
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Give the DuPont model formula for computing (a) rate of return on total assets (ROA) and (b) rate of return on common stockholders’ equity (ROE). Then answer these questions about the rate-of-return computations.
1. Explain the meaning of the component driver ratios in the computation of ROA.
2. What impact does the leverage ratio have on ROE?
3. Under what circumstances will ROE be higher than ROA? Under what circumstances would ROE be lower than ROA?
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Related Book For
Financial Accounting
ISBN: 978-0134725987
12th edition
Authors: C. William Thomas, Wendy M. Tietz, Walter T. Harrison Jr.
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