Question

The net income is $100, sales are $200, total assets are $500, and total equity is $400. According to the DuPont system of financial ratio analysis, ROE is about

Select one:

a. 33%

b. 65%

c. 25%

d. 45%

Answer 1

Profit Margin = Net Income / Sales
= $100/200
=50 %
Assets Turnover Ratio = Sales / average Assets
= $200/500
=0.4 times
Equity multiplier = total assets / equity
=500/400
=1.25
ROE = Profit margin * Asset turnover * equity multiplier
=50%*0.4*1.25
=25%
Correct Answer =c. 25%