Series 79 practice questionhardDuPont Analysis
According to the DuPont equation, which of the following would increase ROE if net income and sales are unchanged, but total assets decrease and equity remains constant?
- AAsset turnover increases✓ Correct answer
- BFinancial leverage decreases
- CGross margin increases
- DNet profit margin decreases
Explanation
Why A — Asset turnover increases
Asset turnover = sales/assets; if assets decrease and sales stay constant, turnover increases, boosting ROE through the DuPont framework. B and D lower ROE, C is unrelated without margin increases.
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