Du Pont Analysis suggests that a given company\'s Return on Equity calculation c

Question

Du Pont Analysis suggests that a given company's Return on Equity calculation can be decomposed into a number of contributory factors. With reference to the Du Pont Equation, describe each of the factors and discuss how management can utilise the output of the Du Pont Analysis in reviewing a given company's overall financial performance. (15 marks) Describe the cash-flow based accruals ratio method of measuring earnings quality. Your answer should set out relevant formulac and contain a brief narrative. (10 marks)

Explanation / Answer

we are supposed to solve one question when multiple psoted and i am solving a)

a)Return on equity=net income/equity
=(net income/sales)*(sales/assets)*(assets/equity)
=net profit margin*asset tunrover*equity multipler
Net profit margin tells how much profit it is earning on unit of sales
Asset turnover is tells how effective it is utilizing the assets and generating sales
equity multiplier tells about the financial leverage the company is and hoe much the debt company has with respect to equity

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