Question

The following condensed information was reported by Peabody Toys, Inc., for 2021 and 2020:

	($ in thousands)
	2021				2020
Income statement information
Net sales	$	6,600			$	5,600
Net income		248				152
Balance sheet information
Current assets	$	940			$	890
Property, plant, and equipment (net)		2,360				2,010
Total assets	$	3,300			$	2,900
Current liabilities	$	1,720			$	1,370
Long-term liabilities		890				890
Common stock		400				400
Retained earnings		290				240
Liabilities and shareholders’ equity	$	3,300			$	2,900

Required:

1. Determine the following components of the DuPont framework for 2021:
2. Write an equation that relates these components in calculating ROE. Use the Peabody Toys data to show that the equation is correct.

Required 1 Required 2 Determine the following components of the DuPont framework for 2021: Choose Numerator: Profit Margin (%) I Choose Denominator: 1 Profit Margin = Profit Margin 1 0 Choose Numerator: = Asset Turnover 1 Choose Denominator: 1 1 Asset Turnover Asset turnover = 0 Choose Numerator: Equity Multiplier I Choose Denominator: 1 1 Equity Multiplier Equity multiplier = 0 Choose Numerator: Return on Shareholders' Equity_(%) I Choose Denominator: Return on Equity 1 Return on equity 1 0 < Required 1 Required 2 >

Answer 1

Requirement 1
Profit Margin
Net Income	/	Net Sales	=	Profit Margin
$                        248,000	/	$                           6,600,000	=	3.76%
Asset Turnover
Net Sales	/	Average Total Assets	=	Asset Turnover Ratio
$                     6,600,000	/	$                           3,100,000	=	2.13
Equity Multiplier
Average Total Assets	X	Average Shareholders Equity	=	Equity Multiplier
$                     3,100,000	X	$                              665,000	=	4.66
Return on Shareholder's Equity
Net Income	/	Average Shareholders Equity	=	Profit Margin
$                        248,000	/	$                              665,000	=	37.29%
Requirement 2
Profit Margin	X	Asset Turnover	X	Equity Multiplier	=	ROE
3.76%		2.13		4.66	=	37.29%
Please note that there is no info on the rounding off relating to part and that is why everything is rounded off to 2 decimal points, There may be some rounding off error