Question

1. Assume a net profit margin of 0.15, that for every dollar of assets sales are $1.10, and the equity multiplier is 1.30. According to the Dupont system of Financial analysis ratio, the ROE would be approximately

1. 7%                                  B.) 15%                                 C.) 18%                                 D.) 21%

Answer 1

Values given are :

Profit margin = 0.15

Asset turnover = $1.10

Equity Multiplier = 1.3

According to Dupont equation

ROE = Profit margin * Asset turnover * Equity multiplier

= 0.15 * 1.10 * 1.30

= 21.45 % or 21%