The leverage component of the Dupont Framework can be calculated by dividing a firm's ____ by its ______.

The leverage component of the DuPont Framework is focused on how much a firm's assets are financed by its equity. This measure helps us understand the extent to which a company is using borrowed funds versus its own funds to support its asset base.

By calculating leverage as a ratio of assets to equity, one can gauge the financial risk related to a firm's capital structure. A higher ratio indicates that a larger portion of the firm’s assets is financed through debt, suggesting greater financial leverage, which can amplify returns but also increases risk.

Understanding this relationship is crucial for evaluating a company's financial health and operational efficiency. It is essential for business managers and investors to recognize how leverage impacts return on equity (ROE) and overall profitability. In this context, the correct calculation method of dividing assets by equity provides a clear picture of leverage as it relates directly to the company’s ability to utilize its assets effectively while managing its equity position.