Question

DuPONT ANALYSIS

Henderson's Hardware has an ROA of 14%, a 3.5% profit margin, and an ROE of 18%.

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.

Answer 1

ROA = Net Income/Total Assets

Divide and multiply by 'Sales'

ROA = Net Income/Total Assets * (Sales/Sales)

ROA = (Net Income/Sales) * (Sales/Total Assets)

ROA = Net profit margin * Total Assets Turnover

14% = 3.5% * Total Assets Turnover

Total Assets Turnover = 14%/3.5% = 4.00

ROE = Net profit margin * Total Asset Turnover * Equity multiplier

18% = 3.5% * 4 * Equity multiplier

Equity multiplier = 18%/(3.5% * 4%) = 1.29