Question

A firm has a profit margin of 7.5% and an equity multiplier of 1.7. Its sales are $400 million, and it has total assets of $240 million. What is its ROE? Do not round intermediate calculations. Round your answer to two decimal places.

Answer 1

DuPont analysis is a method to calculate ROE of the company.

The formula is

ROE = Profit margin * asset turnover * equity multiplier

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ROE = 0.075 * 400,000,000/240,000,000 * 1.7

         = 0.075 * 1.67 * 1.7

         = 0.2125

         Or 21.25%

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Hope that helps.

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