Question

Some recent financial statements for Smolira Golf, Inc., follow. SMOLIRA GOLF, INC. Balance Sheets as of December 31, 2015 and 2016 2015 2016 2015 2016 Assets Liabilities and Owners' Equity Current assets Cash Accounts receivable Inventory Total $ 2,911 4,717 12,678 $20,306 $ 2,807 5,681 13,682 $ 22,170 Current liabilities Accounts payable Notes payable Other Total Long-term debt Owners' equity Common stock and paid-in surplus Accumulated retained earnings Total Total liabilities and owners' equity $ 2,203 1,800 100 $ 4,103 $14,300 $ 2,700 2,216 117 $ 5,033 $ 17,060 Fixed assets Net plant and equipment Total assets $43,000 15,704 $58,704 $77,107 $ 43,000 39,842 $ 82,842 $104,935 $56,801 $77,107 $ 82,765 $104,935 SMOLIRA GOLF, INC. 2016 Income Statement Sales Cost of goods sold Depreciation EBIT Interest paid Taxable income Taxes Net income Dividends $12,005 Retained earnings 24,138 $189,370 127,203 5,233 $ 56,934 1,330 $ 55,604 19,461 $ 36,143 Construct the DuPont identity for Smolira Golf. (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16. Enter the profit margin and return on equity as a percent.) times Profit margin Total asset turnover Equity multiplier Return on equity times

Answer 1

Solution: Profit Margin Total asset turnover Equity multiplier Return on equity 19.08 % 1.8 times 1.27 times 43.62 % a Profit Margin = Net income / Sales Profit Margin = $36,143 / $189,370 Profit Margin = 0.1908 or 19.08% b Total asset turnover = Sales / Total assets Total asset turnover = $189,370 / $104,935 Total asset turnover = 1.80 times c Equity multiplier = Total assets / Stock holders equity Equity multiplier = $104,935 / $82,842 Equity multiplier = 1.27 times d Du-pont analysis ROE = profit margin x total asset turnover x equity multiplier ROE = 0.1908 x 1.80 x 1.27 ROE = 0.4362 or 43.62%