Question
A company's ROE improved entirely because financial leverage increased. How should an analyst judge the sustainability of that improvement?
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Answer
Less sustainable; it reflects higher risk, not better operations.
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Question
Why is DuPont analysis more informative than looking at ROE alone?
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Answer
It shows whether ROE comes from profitability, efficiency, or leverage.
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Question
If interest burden falls, what happens to ROE, assuming other DuPont components are unchanged?
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Answer
ROE falls because interest expense consumes more operating earnings.
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