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All other things being equal, according to the Du Pont model, if a firm’s Return on Equity (ROE) has been increasing and it’s Leverage has been decreasing, then its Return on Assets (ROA) has been:Group of answer choicesIncreasingDecreasingUnable to determine based on the information givenRemaining the same

Question

All other things being equal, according to the Du Pont model, if a firm’s Return on Equity (ROE) has been increasing and it’s Leverage has been decreasing, then its Return on Assets (ROA) has been:Group of answer choicesIncreasingDecreasingUnable to determine based on the information givenRemaining the same

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Solution

According to the Du Pont model, if a firm’s Return on Equity (ROE) has been increasing and its Leverage has been decreasing, then its Return on Assets (ROA) has been increasing.

Here's why:

  1. The Du Pont model is an analytical method used to dissect a company's return on equity (ROE) by presenting it as the product of other financial ratios.

  2. The Du Pont model can be broken down into three components: Profit Margin, Total Asset Turnover, and Equity Multiplier (a measure of financial leverage).

  3. The formula

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Similar Questions

All other things being equal, according to the Du Pont model, if a firm’s Return on Assets (ROA)  has been decreasing but it’s Asset Turnover has been increasing, then its Profit Margin has been:Group of answer choicesIncreasingUnable to determine based on the information givenDecreasingRemaining the same

Question 3Assume a firm earns net income of $10,000 with total assets of $200,000 - half of which is debt - and has 20,000 shares outstanding. Based on this information, its EPS (earnings per share), ROA (return on assets) and ROE (return on equity) are respectively:1 point$2.00; 5%; 10%$2.00; 10%; 5%$0.50; 5%; 5%$0.50; 5%; 10%None of the above

Explain about ROI, ROE, ROA

If the ROE on a new investment is less than the firm's required rate of return A. the investment increases the firm's value. B. the investment leaves the firm's value unchanged. C. the effect on the firm's value is unpredictable. D. the investment reduces the firm's value.

compare tangible / intangible assets & define ROE, ROI and ROA

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