Homework Answers
Given
- Operating profit, EBIT = 36,000
- Sales
- Operating margin = 0.07 = EBIT/Sales
- 0.07 = 36,000/ Sales
- Sales = 36,000 / 0.07 = 514,285.7
- Sales = 514,286 (rounding to nearest integer)
- Debt/Equity = 1.45
- Capital = Debt+Equity = 1.45 + 1 = 2.45
- Debt/Capital = 1.45/2.45 = 0.59
- Equity/Capital = 1/2.45 = 0.41
- Net Income
- EBIT = 36,000
- Less: Interest = 9,000
- EBT = 36,000 - 9,000 = 27,000
- Less: Tax = 9,000
- EAT = Net income, NI = 18,000
- Asset Turnover = 4
- Asset turnover = Sales/Total Assets = 4
- Sales = 514,286
- Total Assets = Sales / 4 = 514,286/4 = 128,571
- Shareholder's Equity
- Total Assets = 128,571
- Shareholder's equity = Total assets / 2.45 = 128,571/2.45 = 52,478
ROE
a)ROE = (TA/Sh.Equity) * (Sales/Assets) * (OPM/Sales) * (Net Income/OPM)
- ROE = (128,571/52,478) * (514,286/128,571) * (0.07/514,286) * (18,000/0.07)
- ROE = 34.30%
b)NI/Avg Equity = 18,000/52,478 = 0.3430 = 34.30%
c)ROE = (Avg Assets/Avg Equity) * (Sales/ Assets) * (Net Income/ Sales)
- ROE = (128,571/52,478) * (514,286/128,571) * (18,000/514,286)
- ROE = 2.45 * 4 * 0.04 = 0.343 = 34.30%
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