Question

Based on the DuPont Identity, an increase in sales, all else held equal, _____ ROE.

A) Increases
B) Decreases
C) Has no effect on ROE
D) Requires further information to determine the impact on ROE

Answer 1

An increase in sales, all else held equal, increases ROE according to the DuPont Identity.

Step-by-step explanation:

According to the DuPont Identity, an increase in sales, all else held equal, increases Return on Equity (ROE).

The DuPont Identity is a formula that breaks down ROE into three parts: profit margin, asset turnover, and leverage. When sales increase, it typically leads to an increase in profit margin or asset turnover. Both of these components contribute to an increase in ROE.

However, it's important to note that this assumes that all other factors remain constant. If other factors like expenses or debt levels change, the impact on ROE may differ.