Why would an analyst use the Modified Du Pont system to calculate ROE when ROE may be calculated more simply? Explain.
In fact, an analyst would not use the Modified Du Pont equation to calculate ROE for accurately the reason stated above. What an analyst would utilize the Modified Du Pont equation for is to help analyze the factors which contribute to a firm's ROE. Alternatively, analysts use the Modified Du Pont system to “take apart” ROE to see what factors are affecting it.