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Why is ROE net income/ average stockholders equity but my Professor told us about the Basic DuPoint...

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Accounting

Whyis ROE net income/ average stockholders equity but my Professortold us about the Basic DuPoint Model and that equation is netincome/ total equity how come you don’t take the average? When doyou know to use a total or a average and what is dupoint? Also whatis the purpose behind the debt to equity risk ratio?

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4.3 Ratings (572 Votes)
ROE Return on Equity ROE can be basicallyconsidered as profitability ratio from shareholders point of viewThis provides how much returns on generated from shareholdersinvestments not from the overall company investments inassetsWe note from the above chart that Return on Equity orROE of Pepsi is better than that of CocaCola WhyIn order to answer this question most analysts use DupontReturn on Equity formula and find out Profit Margin Asset Turnoverand Equity Multiplier Financial Leverage But how they areconnected and why does it mattersThis indepth article on ROE and Dupont Return on Equity answersthis question and covers the following topics What is ROE DuPont Return on Equity Return on Equity DuPont ROE FormulaInterpretation of ROE DuPont ROEROE DuPont ROE ExampleReturn on Equity Example 1ROE Example 2Calculate Return on Equity DuPont ROE of NestleColgates ROE and Dupont Return on Equity calculationReturn on Equity of Soft Drink SectorReturn on Equity of Automobile SectorReturn on Equity of Discount StoresReturn on Equity of Engineering ConstructionCompaniesReturn on Equity of Internet CompaniesReturn on Equity of Oil Gas CompaniesLimitations of ROE DuPont ROEWHAT IS RETURN ON EQUITY DUPONT ROEROE is a simple equation which spells as Return on Equity Butwhen we use DuPont Analysis then things change Why does it changeBecause even if DuPont Analysis will result in the similar ratioie ROE it takes help of few ratios put together to understandthe financial affairs of the company betterLets say that you know that a companys net revenue is morethan another company Now if you base your analysis only on ROEthen it may not give you the right answer You may need to digdeeper and find out whats working for the company and whats notThats the reason DuPont    See Answer
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