True or False: An increase in the equity multiplier is always good for shareholders, True False while investors are extremely interested in the return on equity (ROE), which is calculated as sondere looking at this figure does not tell the whole story. Instead, many investors and analysts look to the DuPont equation to study the components of ROE. The Dupont equation can be Net stated as: ROE = ROA X Equity multiplier Where ROA is the return on total assets. However, given that ROA can be written as the product of profit margin and total assets turnover, the DuPont equation also implies that ROE can be stated as: ROE = Profit margin Total assets turnover x Equity ultiplier The profit margin indicates the income earned on company sales. Since this ratio is strongly influenced by costs and the price of sales, keeping costs in check while keeping prices at a premium will increase profit margin and increase ROE (all else equal). Total assets turnover indicates how many times a company's assets were "tumed over" in a given period of time (typically a year). Thus, this ratio represents the number of times the profit margin is earned The equity multiplier adjusts the return on assets the product of profit margin and total assets turnover) upward to reflect the fact that interest had been paid to bondholders before net income to stockholders was calculated. The ROE obtained by using the DuPont is the same as what would be obtained by the traditional method of dividing net income by shareholder equity. However, by breaking down ROE in this way using the DuPont equation, investors and analysts can gain further insights into the key drivers of ROE Use the previous passage of text to answer the question that follows. Suppose a firm sees an decrease in the number of times its assets are turned over in a year. total assets turnover, resulting in a return on This would represent a equity, all else equal