Question

A- Cells Assignment 3-4 Worksheet - Excel Home Insert Page Layout Formulas Data Review View Developer Tell me what you want to do... & Cut Arial - 12 A A Wrap Text De Copy General Format Painter BI U- Merge & Center $ - % 99 Conditional Format as Cell Insert Delete Formatting Table Styles Clipboard Font Alignment Number Styles fx French Corp. has an Asset/Equity ratio of 1.55. Their current Total Asset Turnover has recently fallen to 1.20, bringing their RO B D F G H 1 K L M N 0 P Assignment 3.4 Exercises Problem 4: Dupont Identity 5 Points The famous Dupont Identity breaks Return on Equity (ROE) into three components: Profit Margin, Total Asset Turnover, and Financial Leverage (Assets/Equity). French Corp. has an Asset/Equity ratio of 1.55. Their current Total Asset Turnover has recently fallen to 1.20, bringing their ROE down to 9.1%. a) What is this firm's Profit Margin? B) If the company were able to improve its Total Asset Turnover to 98, what would be their new ROE? Create your Original Solution Below - Be sure to show all calculations and clearly indicate answers. Input area: Asset/ Equity Total Asset Turnover Return on Equity 1.55 1.20 9.1% Output area #4 #3 #5 #1 #7 #2 #6 #8 #9 dy

French corp has an asset/equity ratio of 1.55. their current total asset turnover has recently fallen to 1.20, bringing their roe to 9.1%
a. what is this firms profit margin?
b. if the company were able to improve its total asset turnover to 1.8, what would be their new roe?

Answer 1

a)profit margin is 7.5%

return on equity=profit margin*asset turn over

profit margin =return on equity/asset turnover

given

return on equity=9.1%

asset turnover=1.20

profit margin =0.091/1.20=0.075 or 7.5 %

note the figures are rounded

b) new ROE is 13.5%

return on equity=profit margin*asset turn over

profit margin=7.5%

asset turnover=1.80

return on equity=7.5%*1.8=13.5%