Doublewide Dealers has an ROA of 9%, a 6.5% profit margin, and an ROE

QUESTION

Doublewide Dealers has an ROA of 9%, a 6.5% profit margin, and an ROE of 22%.a. What is its total assets turnover? Round your answer to two decimal places.b. What is its equity multiplier?
DuPont analysis essentially breaks down ROE (return on equity or Net Income/Shareholders equity) into 3 core parts: Profit Margin, Asset Turnover, and Financial Leverage. ROE = (Net Income/Sales) x (Sales/Assets) x (Assets/Shareholders Equity) The first is profit margin, the second is asset turnover and the third is financial leverage. We are given ROA, profit margin and ROE. ROA or return on assets is Net Income/Total assets, which can always be broken down to (NI/Total Assets) = (NI/Sales) x (Sales/Total Assets). Since this is the value of the first two components of ROE we can say, ROE = ROA x (assets/shareholders Equity) ROA = 13%, ROE =

% so 22% = 13% x (Assets/Shareholders Equity). This last term is also known as the equity multiplier. When we solve for that we get 1.69x. Finally we must find total asset turnover. ROA = 13% and we know ROA is (NI/Total Assets) = (NI/Sales) x (Sales/Total Assets) NI/sales is our profit margin which is 4.5% so we now solve for total asset turnover. 13% = 4.5% x (Sales/Total Assets) When we solve for that we get 2.89x Hope this helps!

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