Question

Henderson's Hardware has an ROA of 8%, a 2.5% profit margin, and an ROE of 17%....

Henderson's Hardware has an ROA of 8%, a 2.5% profit margin, and an ROE of 17%.

What is its total assets turnover? Round your answer to two decimal places.

What is its equity multiplier? Round your answer to two decimal places.


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Answer #1

Total Asset Turnover

As per DuPont Model, the Return on Assets (ROA) is calculated by using the following formula

Return on Assets (ROA) = Net Profit Margin x Total Assets Turnover

0.08 = 0.0250 x Total Assets Turnover

Total Assets Turnover = 0.08 / 0.0250

Total Assets Turnover = 3.20 Times

Equity Multiplier

As per DuPont Model, the Return on Equity (ROE) is calculated by using the following formula

Return on Equity (ROE) = Net Profit Margin x Total Asset Turnover x Equity Multiplier

0.17 = 0.0250 x 3.20 x Equity Multiplier

0.17 = 0.08 x Equity Multiplier

Equity Multiplier = 0.17 / 0.08

Equity Multiplier = 2.13

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