The DuPont decomposition breaks ROE into:

A Two components

B Three components: profit margin, asset turnover, and financial leverage

C Five components

D Only one measure

✓ Correct Answer: Option B

3-component DuPont: ROE = (NI/Sales) × (Sales/Assets) × (Assets/Equity) = Margin × Turnover × Leverage.

💡 Why is B) the correct answer?

The correct answer to the question "The DuPont decomposition breaks ROE into:" is Option B: Three components: profit margin, asset turnover, and financial leverage.

The other options — A) Two components, C) Five components, D) Only one measure — are incorrect for this CFA Exam Prep question. As explained above: 3-component DuPont: ROE = (NI/Sales) × (Sales/Assets) × (Assets/Equity) = Margin × Turnover × Leverage.

📚 About This CFA Exam Prep Practice Question

This 2-level CFA Exam Prep question from the Financial Reporting topic is part of BrainForge Quiz's free exam preparation library. Each question includes the correct answer and a detailed explanation to help you understand the underlying concept, not just memorize the answer.

How to use this page: Read the question above, consider all four options (A through D), then check the highlighted correct answer and explanation. For active timed practice, start a free CFA Exam Prep practice test or use flashcards for spaced repetition review.

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The DuPont decomposition breaks ROE into:

✓ Correct Answer: Option B

📚 About This CFA Exam Prep Practice Question

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