The DuPont identity breaks ROA into which two components?

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The DuPont identity breaks ROA into which two components?

The DuPont identity splits return on assets into two driving factors: how much profit is earned from each dollar of sales (net profit margin) and how efficiently assets are used to generate sales (asset turnover). Multiplying these two together gives ROA: Net Profit Margin × Asset Turnover. The equity multiplier is a leverage measure that links ROA to return on equity, since ROE = ROA × Equity Multiplier, or equivalently ROE = Net Profit Margin × Asset Turnover × Equity Multiplier. So for ROA, the two components are net profit margin and asset turnover; the asset turnover with equity multiplier describes a decomposition of ROE, not ROA.

The DuPont identity splits return on assets into two driving factors: how much profit is earned from each dollar of sales (net profit margin) and how efficiently assets are used to generate sales (asset turnover). Multiplying these two together gives ROA: Net Profit Margin × Asset Turnover. The equity multiplier is a leverage measure that links ROA to return on equity, since ROE = ROA × Equity Multiplier, or equivalently ROE = Net Profit Margin × Asset Turnover × Equity Multiplier. So for ROA, the two components are net profit margin and asset turnover; the asset turnover with equity multiplier describes a decomposition of ROE, not ROA.

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