Question

9.)

The Golden Eagle Corporation has the following items on their income and balance sheets (values in tables are in thousands:

Balance Sheet Items
(Assets)

	Last Year	Two Years Ago
Cash	480	440
Accounts Receivable	600	530
Inventory	283	284
Total Current Assets
Fixed Assets	5100	4710
Depreciation	2375	2081
Net Fixed Assets

Balance Sheet Items
(Liabilities)

Accounts Payable	570	550
Notes Payable	86	95
Total Current Liabilities
Long Term Liabilities	1110	980
Total Liabilities
Preferred Stock	115	115
Common Stock	321	321
Retained Earnings	1410	1090
Total Liabilities and Equity

Income Statement Items

	Past Year	Two Years Ago
Sales	3160	2600
Cost of Goods Sold	1980	1600
Operating Expenses	590	525
Interest Paid	93	86
Taxes Paid	81	78
Preferred Stock Dividends Paid	94	22

Using the Dupont System of Analysis, what are the earnings available for common share holders?

Your Answer:

Answer 1

Dupont System Analysis Formula for calculating ROE=Profit margin*Asset turnover*Equity multiplier

Where Profit margin=Net Income /Revenue

Calculation of Net Income

Particulars	Amount (In thousands) Last Year	Amount (In thousands) Two Years ago
Total Sales	3160	2600
Cost of goods sold	1980	1600
Operating Expenses	590	525
Profit before Interest and tax(PBIT)	590	475
Less: Interest	93	86
Profit Before Tax	497	389
Less: Tax	81	78
Net Profit	416	311

Last Year

=416/3160=$ 0.13164

Two Years ago

=311/2600= $ 0.1196

Asset Turnover= Sales/Total Asset

Last Year

=3160/6462=$0.5127

Two Years ago

=2600/5964= $ 0.4359

Equity Multiplier= Average Assets /Average Equity

Last Year

=6462/321=$ 20.133

Two Years ago

=5964/321= $ 18.5794

Therefore ROE

Last Year

=0.13164*0.5127*20.133

= $ 1.3588

Two Years ago

=0.1196*0.4359*18.5794

= $ 0.9686