Question

The 2021 income statement for Anderson TV and Appliance reported net sales of $360,000 and net income of $85,000. Average total assets for 2021 was $800,000. Shareholders’ equity at the beginning of the year was $500,000 and $40,000 was paid to shareholders as dividends. There were no other shareholders’ equity transactions that occurred during the year.

Show the DuPont framework's calculation of the three components of the 2021 return on equity for Anderson TV and Appliance.

Profit Margin (%) Choose Numerator: / Choose Denominator: = Profit Margin Net income / Net sales = Profit Margin ? / ? = ? Asset Turnover Choose Numerator: / Choose Denominator: = Return on Assets Net sales / Average total assets = Asset turnover ? / ? = ? times Equity Multiplier Choose Numerator: / Choose Denominator: = Return on Equity Average total assets / Average shareholders’ equity = Equity multiplier $800,000 / ? = ? times Return on equity ?

  

Answer 1

Show the DuPont framework's calculation of the three components of the 2021 return on equity for Anderson TV and Appliance.

Profit Margin (%) Choose Numerator: / Choose Denominator: = Profit Margin Net income / Net sales = Profit Margin 85000 / 360000 = 23.61% Asset Turnover Choose Numerator: / Choose Denominator: = Return on Assets Net sales / Average total assets = Asset turnover 360000 / 800000 = 0.45 times Equity Multiplier Choose Numerator: / Choose Denominator: = Return on Equity Average total assets / Average shareholders’ equity = Equity multiplier $800,000 / 522500 = 1.53 times Return on equity 23.61*1.53*.45 = 16.26%

Ending stockholder's equity = 500000+85000-40000 = 545000

Average equity = (500000+545000/2) = 522500