Question

Precious Metal Mining has $15 million in sales, its ROE is 13%, and its total assets turnover is 3.2×. Common equity on the firm’s balance sheet is 80% of its total assets. What is its net income? Do not round intermediate calculations. Round your answer to the nearest cent. $

Answer 1

ROE = 13%

assets turnover = 3.2

equity as % of total assets = 80%

Equity multiplier = Total assets/equity

=100%/80% = 1.25

ROE as per Duo-point equation = Net income/Sales * Sales/Total assets * Total assets/Equity

or we can say

ROE as per Duo-pont equation = Profit margin * Assets turnover * Equity multiplier

13% = PM*3.2*1.25

PM = 13%/(3.2*1.25)

=0.0325

Profit margin = Net income /sales

0.0325 = net income/15000000

net income = 15000000*0.0325

=487500

So net income is 487500