Which one of the following is not a factor impacting the DuPont decomposition?

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BlackTom AI · Accepted Answer

The question asks which item is not a factor impacting the DuPont decomposition.
First, recall what the DuPont decomposition analyzes: it breaks return on equity (ROE) into components that reflect profitability, efficiency, and leverage. The classic decomposition is ROE = (Net Income / Sales) * (Sales / Assets) * (Assets / Equity), i.e., profit margin, asset turnover, and equity multiplier (financial leverage).
Option analysis is not possible here in full because the provided data lacks the list of answer choices. Nevertheless, we can reason about typical factors that do influence DuPont outcomes and highlight why some items would be irrelevant.
- Profitability component (net income / sales): This is directly part of the DuPont framework, so items that affect net profit margin or operating margin would influence ROE via the first factor.
- Asset efficiency component (sales / assets): This touches asset turnover. Any factor affecting how efficiently assets generate sales will alter this component.
- Leverage component (assets / equity or equity multiplier): This reflects financial leverage. Variables that change debt levels or equity base will impact ROE through this third component.
- Other items not tied to these three structural choices, such as dividends paid, are generally not included in the DuPont decomposition. Dividends affect cash flow distributions to shareholders but do not alter net income, asset base, or the equity multiplier in the framework.
If the option list included something like 'dividends as a percent of net income,' that would not be a factor in the DuPont breakdown, since dividends influence distribution policy rather than profitability, asset use efficiency, or leverage as defined by the decomposition.
In contrast, anything that changes net income, asset base, or equity (for example, changes in sales, cost of goods sold, asset purchases, or new equity financing) would be expected to alter the DuPont factors and thus ROE.
Because the option list is missing here, we cannot evaluate each alternative specifically. The general principle remains: only items that affect profitability, asset turnover, or leverage are DuPont factors; dividends as a percent of net income fall outside those three structural components.

MSB-250-300-002 Topic 3 Quiz

Which one of the following is not a factor impacting the DuPont decomposition?

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