Question

Which of the following is the DuPont formula for return on stockholders' equity?

a.Return on stockholders' equity = (Operating Income ÷ Sales) × (Average Total Assets ÷ Average Stockholders' Equity)

b.Return on stockholders' equity = Profit margin × (Average Stockholders' Equity ÷ Average Total Assets)

c.Return on stockholders' equity = Operating Income ÷ Average Stockholders' Equity

d.Return on stockholders' equity = Common Stock + Preferred Stock + Additional Paid-in-Capital – Treasury Stock

Answer 1

Which of the following is the DuPont formula for return on stockholders' equity?

Dupont Formula = Profit margin* Assets turnover

                          = (Operating income/Sales)*(Sales/Stockholder's equity)

                            = Operating income/Average stockholder's equity

So answer is c) Return on stockholders' equity = Operating Income ÷ Average Stockholders' Equity