Last year ABC Corp had sales of $315,000, net income of $12,600,year end assets of $210,000....
Last year ABC Corp had sales of $315,000, net income of $12,600,year end assets of $210,000. The firm's total liabilities to total assets ratio is 20%. Based on the DuPont equation what is the ROE?
Homework Answers
Profit margin=Net income/Sales
=(12600/315,000)
=4%
Total liabilities to total assets=Total liabilities/total assets
Total liabilities=(210,000*20%)=$42000
total assets=Total liabilities+Total equity
Total equity=(210,000-42,000)=$168,000
Total asset turnover=Sales/Total assets
=(315,000/210,000)
=1.5
Equity multiplier=Total assets/Equity
=210,000/168,000
=1.25
ROE=Profit margin*Total asset turnover*Equity multiplier
=4%*1.5*1.25
=7.5%
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