XYZ Corporation has the following financial information for the previous year:
XYZ Corporation has the following financial information for the previous year:
Sales: $8M, Profit Margin (PM)-8%, Current Asset (CA) = $2M, Fixed Asset (FA) = $6M, NWC-SIM, LTD = $3M
Compute the ROE using the DuPont Analysis.
Homework Answers
ROE = Net Profit Margin x Asset Turnover x Financial Leverage = Net Income / Sales x Sales / Assets x Assets / Equity = Net Income / Equity
Here, NPM = 8%
Assets = CA + FA = $8M
Asset Turnover = Sales / Asset = 8 / 8 = 1.0
Total Liabilities = CL + LTD = (CA - NWC) + LTD = 1 + 3 = 4
=> Equity = Assets - Liabilities = 8 - 4 = $4M
Financial Leverage = Asset / Equity = 8 / 4 = 2.0
=> ROE = 8% x 1.0 x 2.0 = 16.0%
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