ABC Corporation has reported the following financial information for the current fiscal year: Net Income: $500,000 Sales Revenue: $2,500,000 Total Assets: $1,200,000 Total Equity: $800,000 Using the DuPont Analysis framework, which of the following statements correctly describes the components of Return on Equity (ROE) based on ABC Corporation's performance?

Exam

CFA Level 1

Section

Difficulty

Financial Reporting and Analysis

DuPont Analysis for ABC Corporation

Hard Analysis Techniques Dupont Analysis

ABC Corporation has reported the following financial information for the current fiscal year:

Net Income: $500,000
Sales Revenue: $2,500,000
Total Assets: $1,200,000
Total Equity: $800,000

Using the DuPont Analysis framework, which of the following statements correctly describes the components of Return on Equity (ROE) based on ABC Corporation's performance?

The ROE can be calculated by multiplying the profit margin by the total asset turnover, reflecting asset efficiency.

The ROE is determined by multiplying the profit margin, asset turnover, and the financial leverage ratio, demonstrating how well the company uses debt.

The ROE is independent of the financial leverage and entirely based on net income and sales revenue.

Hint

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