Question

Sandhill Corporation recently filed the following financial statements with the SEC. Sandhill Corporation Income Statement for the Fiscal Year Ended July 31, 2017 Net sales Cost of products sold Gross profit Selling, general, and administrative expenses Depreciation Operating income (loss) Interest expense Earnings (loss) before income taxes Income taxes Net earnings (loss) $67,377 47,925 $19,452 8,586 975 $9,891 597 $9,294 3,253 $6,041 $5,614 4,983 4,242 9,485 $24,324 Sandhill Corporation Balance Sheet as of July 31, 2017 Assets Liabilities and Stockholders' Equity Cash and marketable securities $8,024 Accounts payable Accounts receivable 7,216 Accrued and other liabilities Inventory 8,190 Taxes payable Deferred income taxes 808 Debt due within one year Prepaid expenses & other receivables 2,579 Total current liabilities Total current assets $26,817 Property, plant, and equipment, at cost 57,470 Long-term debt Less: Accumulated depreciation 20,420 Deferred Income taxes Net property, plant, and equipment $37,050 Other non-current liabilities Net goodwill and other intangible assets 14,970 Total liabilities Common stock Retained earnings Total stockholders' equity Total assets $78,837 Total liabilities and stockholders' equity 22,340 6,351 5,159 $58,174 3,374 17.289 20,663 $78,837 Use the DuPont identity to calculate

Answer 1

Net profit margin = Net profit /sales = 6041/67377 = 8.97%

Total Asset turnover = Sales/total assets = 67377/78837 = 0.85

Equity multiplier = Total assets / total shareholder's equity = 78837/20663 = 3.82

Return on assets = Net profit/Total assets = 6041/78837 = 7.66%

ROA can also be calculated using net profit margin*total asset turnover

So, ROA using this = 8.97*0.85 = 7.66%

EBIT return on assets = operating income/total assets = 9891/78837 = 12.55%

Calulating ROE using DuPont formula

ROE = Net profit margin*total asset turnover*equity multiplier = 8.97*0.85*3.82 = 29.24%

Also, ROE = Net profit/Total equity = 6041/20663 = 29.24%