- CFA Exams
- CFA Level I Exam
- Study Session 7. Financial Reporting and Analysis (2)
- Reading 24. Financial Analysis Techniques
- Subject 3. The DuPont System

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**CFA Practice Question**

An analyst calculates the following ratios for a firm:

Net Profit Margin (%): 4

Return on Total Assets (%): 11.2

Equity/ Total Assets: 0.625

Sales/Total Assets: 2.8

Net Profit Margin (%): 4

Return on Total Assets (%): 11.2

Equity/ Total Assets: 0.625

The return on equity (in %) for this firm is closest to ______.

A. 11.2

B. 14.0

C. 17.9

**Explanation:**ROE = Net Profit Margin x Sales/Total Assets x Total Assets/Equity = 4.0 x 2.8 x 1/0.625 = 17.9%

Alternatively, ROE = Return on Total Assets x Total Assets/Equity = 11.2 x 1/0.625 = 17.9%.

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**User Contributed Comments**
1

User |
Comment |
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cfastudypl |
Good question NA! |