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What does the DuPont analysis decompose return on equity into?

  1. A Net profit margin, asset turnover and equity multiplier
  2. B Revenue, cost and tax
  3. C Liquidity, solvency and profitability
  4. D Alpha, beta and gamma
Answer

Net profit margin, asset turnover and equity multiplier

It reveals whether ROE is driven by profitability, efficiency or leverage, and leverage-driven ROE carries more risk.

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