How to calculate  Return on Equity (ROE) using the DuPont system.

He final project will involve applying the concepts learned in class

Return on Equity (ROE) is a measure of how efficiently a company is using its equity to generate profit and can be calculated using the DuPont system. This system takes into account three main components: net profit margin, asset turnover ratio, and financial leverage ratio.

The formula for calculating ROE is:
ROE = (Net Profit Margin x Asset Turnover Ratio x Financial Leverage Ratio) / Average Shareholders’ Equity

Net profit margin refers to net income divided by total sales while asset turnover ratio measures profitability in relation to assets used in operations; both of these ratios should be expressed as a percentage. Lastly, financial leverage ratio looks at the amount of debt used to finance the company’s operations relative to shareholder equity.

By taking all these factors into consideration, one can get an accurate picture of how well a firm is utilizing its resources and making efficient use of its capital structure in order to create value for shareholders over time.