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27 Nov 2019

The DuPont Approach breaks down the earning power on shareholders'book value (ROE) as follows: ROE = __________.



? Net profit margin × Total asset turnover × Equitymultiplier

? Total asset turnover × Gross profit margin × Debt ratio

? Total asset turnover × Net profit margin

? Total asset turnover × Gross profit margin × Equity multiplier

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Nestor Rutherford
Nestor RutherfordLv2
24 May 2019
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Didyoustudy, Inc. has net income of $1,750,000, an asset turnover of 2.5, and $15 million in total assets, of which $8 million is debt. Use the Du Pont system to calculate its ROE, decomposed into ROA, Total asset turnover, profit margin, and the equity multiplier. MAKE SURE TO SHOW ALL YOUR WORK

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E13-5 Matching Each Ratio with Its Computational Formula LO 13-4, 13-5, 13-6, 13-7
Match each definition with its related ratios or percentages by selecting the appropriate letter in the drop down provided.
Definitions: Ratios or Percentages Definitions
A. Net Income (before extraordinary items) ÷ Net Sales 1 Profit margin
B. Days in Year ÷ Receivable Turnover ratio 2 Inventory turnover ratio
C. Net Income ÷ Average Stockholders’ Equity 3 Average collection period
D. Net Income ÷ Average Number of Shares of Common Stock Outstanding 4 Dividend yield ratio
E. Return on Equity − Return on Assets 5 Return on equity
F. Quick Assets ÷ Current Liabilities 6 Current ratio
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H. Cost of Goods Sold ÷ Average Inventory 8 Price/earnings ratio
I. Net Credit Sales ÷ Average Net Receivables 9 Financial leverage percentage E
J. Days in Year ÷ Inventory Turnover Ratio 10 Receivable turnover ratio
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O. Cash from Operating Activities (before interest and taxes) ÷ Interest Paid 15 Times interest earned
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