Multiple Choice
Which of the following is a financial performance measure at an organizational level?
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14. Financial Statement Analysis
Ratios: Return on Assets (ROA)
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Which two ratios are multiplied in the DuPont system to calculate Return on Assets (ROA)?
A
Current Ratio and Debt-to-Equity Ratio
B
Operating Margin and Quick Ratio
C
Net Profit Margin and Total Asset Turnover
D
Gross Profit Margin and Inventory Turnover
Verified step by step guidance1
Understand the DuPont system: The DuPont system is a method used to analyze a company's financial performance by breaking down Return on Assets (ROA) into its component ratios.
Identify the formula for ROA in the DuPont system: ROA is calculated as the product of Net Profit Margin and Total Asset Turnover.
Define Net Profit Margin: Net Profit Margin is the ratio of net income to total revenue, which measures how efficiently a company converts revenue into profit.
Define Total Asset Turnover: Total Asset Turnover is the ratio of total revenue to average total assets, which measures how efficiently a company uses its assets to generate revenue.
Combine the two ratios: Multiply Net Profit Margin and Total Asset Turnover to calculate ROA, as per the DuPont system.
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