Calculating Return on Equity using DuPont Analysis

Medium Analysis Techniques Dupont Analysis

During a recent evaluation, an analyst is analyzing the financial performance of Company XYZ using the DuPont Analysis framework. The analyst identifies that Company XYZ has a net income of $200,000, total sales revenue of $1,000,000, and total assets amounting to $500,000.

Based on the DuPont Analysis, the analyst is particularly interested in determining the return on equity (ROE) of Company XYZ. The analyst knows that the total equity of the company is $300,000. Which one of the following calculations correctly represents the return on equity for Company XYZ based on this data?

Return on Equity (ROE) = Net Income / Total Assets = $200,000 / $500,000

Return on Equity (ROE) = Net Income / Total Equity = $200,000 / $300,000

Return on Equity (ROE) = Total Sales / Total Assets = $1,000,000 / $500,000

Hint

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