Question

Return on Investment, DuPont Analysis and Financial Leverage The following table presents selected 2016 financial information for Sunder Company Sunder Company Selected 2016 Financial Data Balance Sheet: Average total assets $1,000,000 Average total liabilities 500,000 Average stockholders' equity 500,000 Income Statement Sales revenue $1,000,000 Earnings before interest (net of tax) 20,000 Interest expense (net of tax) 15,000 5,000 Net income Round answers to one decimal place (i.e., 0.0025 = 0.3%). Use negative signs with answers, when appropriate. a. Compute Sunder's ROE, ROA, and ROFL for 2016 ROE ROA ROFL inore Insight on page 230 to disaggregate ROE.

Answer 1

a)	ROE
	Return On Stockholders Equity = Net Income / Average Stockholders Equity
	= $5000/500000
	=1 %
	ROA
	Return On Assets = Net Income / Average Assets
	= $5000/1000000
	=0.5 %
	ROFL
	= Return on equity - return on assets
	=1% -0.5%
	=0.5%
b)	Profit Margin = Net Income / Sales
	= $5000/100000
	=5 %
	Assets Turnover Ratio = Sales / average Assets
	= $100000/1000000
	=0.1 times
	Financial Leverage = Average total assets / Average shareholders equity
	=$1000000/500000
	=2 times
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