Du Pont and ROE

QUESTION

A firm has a profit margin of 5.5% and an equity multiplier of 2.4. Its sales are $140 million and it has total assets of $84 million. What is its ROE? Round your answer to two decimal places.
The ROE is calculated using Du-Pont analysis: ROE = Profit margin * Total asset turnover ratio * Equity multiplier But we dont know the Total asset turnover ratio Total asset turnover ratio = Sales / Total assets = $140,000,000 /

000 = 1.67 Substituting the values in the above formula, we get ROE = 0.055 * 1.67 *2.4 = 0.22 or 22% Therefore, the ROE calculated using DU-Pont model is 22%

ANSWER:

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