Profit margin multiply assets turnover multiply equity multiplier is used to calculate____________?
Correct answer: D. Return on equity
- A. Return on turnover
- B. Return on stock
- C. Return on assets
- D. Return on equity
Explanation
This is the DuPont identity: profit margin multiplied by total asset turnover gives return on assets, and multiplying by the equity multiplier gives return on equity. The equity multiplier captures the effect of financial leverage.
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About Business Finance
Business finance explains how organisations plan, obtain and use money while balancing risk, return and liquidity. Topics include financial statements, time value of money, budgeting, working capital, capital structure, sources of finance, investment appraisal and cost of capital. Capital budgeting evaluates long-term projects, whereas working capital manages day-to-day operations.
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