Question

DuPont analysis is conducted using the DuPont equation, which helps you analyze three important factors that drive a company's ROE. According to the equation, which of the following factors affect a company's ROE directly? Check all that apply.
a. perational efficiency
b. Market-to-book-value ratio
c. Efficiency in use of total assets

Answer 1

Answer: a. Operational efficiency

c. Efficiency in use of total assets

Explanation:ROE(RETURNS ON EQUITY) This is a term used in financial analysis,it is the percentage representation of the value of a company's NET INCOME DIVIDED BY THE VALUE OF THE SHAREHOLDERS SHARES. Both the balance sheet and the income statement is used when calculating ROE.

OPERATIONAL EFFICIENCY tries to Describe how well the management of the entire Operations is carried out. It is a major determining factor in ROE.

EFFICIENCY IN USE OF TOTAL ASSETS this is a term used to determine how well a company is effectively using it's assets. This assets can be in the form of Financial, Machines,raw materials etc.

Since ROE involves NET INCOME, efficiency in use of total assets is a major determining factor in ROE.