Question
You are reviewing your company's return on equity (ROE) using the DuPont equation. During your analysis, you found that the company's ROE increased, even when
You are reviewing your company's return on equity (ROE) using the DuPont equation. During your analysis, you found that the company's ROE increased, even when the profit margin and the total asset turnover ratio of the firm declined. Identify the statement that best explains this increase in your firm's ROE.
1) The debt load of the firm decreased, causing the ROE to increase.
2) The common equity of the firm increased, causing the ROE to increase.
3) The debt load of the firm increased faster than the decrease in the profit margin and total asset turnover.
4) The increase in the ROE could be due to the sale of assets by the firm.
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