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Question:

From the extended (5-part) DuPont equation, which of the following components describes the equation EBT / EBIT?

A Interest burden.
Explaination

EBT / EBIT is the interest burden, the second component in the extended DuPont equation. It shows that more leverage does not always lead to higher ROE. As leverage rises, so does the interest burden. The positive effects of leverage can be offset by the higher interest payments that accompany higher levels of debt. Net income / EBT is called the tax burden and is equal to (1 - tax rate). The higher the tax rare, the lower the ROE level. EBIT / revenue is called the EBIT margin or operating margin.