Question

sales at $3000 total assets at $1500 earnings availible for common stockholders are $150 and total debt ratio of .60. calculate profit margin. calculate the total asset turnover. calculate the equity multiplier. calculate ROE using the DU Pont system. Calculate the ROA using the DU Pont system.

Answer 1

1. Profit margin = Earnings available for common stockholders/Sales = $150/$3,000 = 0.05 = 5%

2. Total assets turnover = Sales/Total assets = $3,000/$1,500 = 2 times

3.

Debt ratio = 0.60 = Total debt/Total assets = Debt/Debt+ Equity

Debt = 0.60*(Debt+Equity)

Debt-0.60*Debt = 0.60*Equity

0.40*Debt= 0.60*Equity

Debt = 0.60/0.40*Equity = 1.5*Equity

Equity multiplier = Total assets/Total equity = (Debt+equity)/Equity

Equity multiplier = 2.5*Equity/Equity = 2.5 times

4.

ROE using dupont system = Profit margin*Asstes turnover*Equity multiplier

ROE = 5% * 2 times * 2.5 times = 25%

5.

ROA using Dupont system = Profit margin*Asstes turnover = 5%*2 times = 10%