Dupont Analysis: Company A and Company B each had a return on assets (ROA) of 9.0%...
Dupont Analysis: Company A and Company B each had a return on assets (ROA) of 9.0% in 2018. However Company A has an equity multiplier ratio (as measured by assets/stockholders' equity) that is half of the equity multiplier calculated for Company B. Which of the following statements is Correct?
| A. | Company A has a higher return on equity (ROE) than Company B. |
| B. | Company B has a higher ROE than Company A. |
| C. | Company B has more shares outstanding than Company A. |
| D. | Company A has more working capital liquidity than Company B. |
Homework Answers
Correct answer is option : B. Company B has a higher ROE than Company A
| we know that ROE = ROA*equity multiplier | ||||||||||
| Its given that both the company has same ROA but equity multiplier of company A is lower than company B. | ||||||||||
| Therefore Company B will have higher ROE compared to company A . | ||||||||||
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Dupont Analysis: Company A and Company B each had a return on assets (ROA) of 9.0%...
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Corporate decision makers and analysts often use a particular technique, called a DuPont analysis, to better...
Corporate decision makers and analysts often use a particular
technique, called a DuPont analysis, to better understand the
factors that drive a company’s financial performance, as reflected
by its return on equity (ROE). By using the DuPont equation, which
disaggregates the ROE into three components, analysts can see why a
company’s ROE may have changed for the better or worse, and
identify particular company strengths and weaknesses.
The DuPont Equation
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information for ATT and Verizon to conduct a DuPoint system of
analysis for each company,
a. Which company has the higher net profit? Higher asset
turnover?
b. Which company has the higher ROA? The higher ROE?
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