Question

If we know that a firm has a net profit margin of 4.2%, total asset turnover...

If we know that a firm has a net profit margin of 4.2%, total asset turnover of 0.62, and a financial leverage multiplier of 1.37, what is its ROE? What is the advantage to using the DuPont system to calculate ROE over the direct calculation of earnings available for common stockholders divided by common stock equity?

Business   Accounting   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

ROE as per Dupont system = Net profit margin x Total asset turnover x Financial leverage multiplier

= 4.20% * 0.62 * 1.37

= 3.57%

The advantage of Dupont system over a direct calculation is that it povides an insight into each factor that contributes to the ROE of a firm and any factor that is slowing down the ROE can be introspected which would not have been possible under direct calculation. The ROE is decomposed in three important aspects and each aspect can be compared with the targets. Any weakness can be analyzed further and rectified in the due course.  

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
if we know that a firm has a net profit margin of 4.5%, total asset turnover...
if we know that a firm has a net profit margin of 4.5%, total asset turnover of 0.72, and a financial leverage multiplier of 1.24, what is its ROE? What is the advantage to using the DuPont system to calculate ROE over the direct calculation of earnings available for common stockholders divided by common stock equity?
Consider a firm with a net profit margin of 4.2%, a total asset turnover of 1.4,...
Consider a firm with a net profit margin of 4.2%, a total asset turnover of 1.4, total assets of $40 million, and a book value of equity of 20 million. What is the firm’s current ROE? If the firm increased its net profit margin to 5%, what should be its ROE? What would be the effect of buying back 5 million of equity with new debt? What would be its new ROE?
Consider a retail firm with a net profit margin of 3.74 %​, a total asset turnover...
Consider a retail firm with a net profit margin of 3.74 %​, a total asset turnover of 1.88​, total assets of $ 43.4 ​million, and a book value of equity of $ 18.3 million. a. What is the​ firm's current​ ROE? b. If the firm increased its net profit margin to 4.45 %​, what would be its​ ROE? c.​ If, in​ addition, the firm increased its revenues by 22 % ​(maintaining this higher profit margin and without changing its assets...
Consider a retail firm with a net profit margin of 3.35 %​, a total asset turnover...
Consider a retail firm with a net profit margin of 3.35 %​, a total asset turnover of 1.79​, total assets of $ 43.1 ​million, and a book value of equity of $ 17.5 million. a. What is the​ firm's current​ ROE? b. If the firm increased its net profit margin to 4.08 %​, what would be its​ ROE? c.​ If, in​ addition, the firm increased its revenues by 25 % ​(maintaining this higher profit margin and without changing its assets...
The DuPont System determines the ROE of a firm as the product of the firm's profit...
The DuPont System determines the ROE of a firm as the product of the firm's profit margin, equity multiplier, and it's______. Question 40 options: Current Ratio Inventory Turnover Total Asset Turnover Fixed Asset Turnover
for an all equity firm with a total asset turnover of 1.6, what profit margin would...
for an all equity firm with a total asset turnover of 1.6, what profit margin would achieve a target ROE of 0.29? Conver the profit margin rate to a percent
One. The famous Dupont Identity breaks Return on Equity (ROE) into three components: Profit Margin, Total...
One. 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 1.8, what would be their new ROE? Two. Sousa, Inc., has Sales of $37.3...
Travel Corp. has net income of $2 million, an effective tax rate of 35%, interest expense...
Travel Corp. has net income of $2 million, an effective tax rate of 35%, interest expense of $400,000, sales of $30 million, and $15 million in total assets, of which $5 million is debt. Use the DuPont system to calculate its ROE, decomposed into leverage ratio, asset turnover, profit margin, and debt burden. profit margin = ?? asset turnover = ?? equity multiplier = ?? return on equity = ??
Vintage, Inc. has a total asset turnover of 0.64 and a net profit margin of 3.23...
Vintage, Inc. has a total asset turnover of 0.64 and a net profit margin of 3.23 percent. The total assets to equity ratio for the firm is 2.0. Calculate Vintage’s return on equity.
Based on the information below, which of the following statements is most likely correct? Profit margin...
Based on the information below, which of the following statements is most likely correct? Profit margin Asset turnover Equity multiplier Return on equity (ROE) Firm A 1.14 3.2 1.2 4.38 Firm B 1.14 3.1 1.9 6.71 Firm B's higher leverage seems to have engineered its ROE to be higher than Firm A's. Although Firm B's ROE is higher, its profit margin and asset turnover suggest that Firm A has been a lot more efficiently operating company in terms of managing...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT