Question

Assets 2017 2018 Current assets Cash Accounts receivable Inventory $ 23,066 13,648 27152 $ 63,866 SMOLIRA GOLF CORP. 2017 and 2018 Balance Sheets Liabilities and Owners' Equity 2018 2017 Current liabilities $ 25,300 Accounts payable $ 24,384 16,400 Notes payable 14,000 28,300 Other 12,771 $ 70,000 Total $ 51,155 Long-term debt $ 81,000 $ 28,300 12,000 19,700 $ 60,000 Total $ 85,703 Owners' equity Common stock and paid-in $ 55,000 surplus Accumulated retained 213.406 earnings $ 55,000 233,297 Fixed assets Net plant and equipment $336,695 $364.000 Total $268,406 $288,297 Total assets $ 400,561 $434,000 Total liabilities and owners' equity $ 400,561 $434,000 SMOLIRA GOLF CORP. < Prev 23 of 24 Next >

Answer 1

Answer:

Profit Margin = Net Income / Sales * 100
Profit Margin = $41,891 / $333,706 * 100
Profit Margin = 12.55%

Total Assets Turnover = Sales / Total Assets
Total Assets Turnover = $333,706 / $434,000
Total Assets Turnover = 0.77 times

Debt – Equity Ratio = Total Debt / Total Equity
Debt – Equity Ratio = ($60,000 + $85,703) / $288,297
Debt – Equity Ratio = 0.51 times

Equity Multiplier = 1 + Debt – Equity Ratio
Equity Multiplier = 1 + 0.51
Equity Multiplier = 1.51 times

As per DuPont,
ROE = Profit Margin * Total Assets Turnover * Equity Multiplier
ROE = 12.55% * 0.77 * 1.51
ROE = 14.59%

The Company’s profit margin is 12.55 percent. The Total Asset turnover is 0.77 times. The Equity Multiplier is 1.51 times. Using the DuPont Identity, the company’s ROE is 14.59 percent.