Problem 3-17 DuPont Identity [LO 3] as of 31, 2015 and 2016 Current assets Curre

Question

Problem 3-17 DuPont Identity [LO 3] as of 31, 2015 and 2016 Current assets Current 72,718 S 91,489 Acoounts payable 80,520132,088 326,100 87,139Notes payable Inventory 255,942 Long-term debl 227,000 $ 227,000 190.750 Fixed assets retained eamings 229414 Total Total assets $ 911,692 $ 946363 Total Suppose that the Bethesda Mining Company had sales of $2,346,873 and net incote of $90,381 for the year ending December 31, 2016 Calculate ROE using the DuPont identity. (Do not round intermediate calculations and round equity as a percent) your answers to 2 Profit 3.85 0% Equity multiplier 38 Oames .00 0% MacBook Pro

Explanation / Answer

Profit margin = (Net income / Sales) × 100

                        = ($90,381 / $2,346, 873) × 100

                        = 3.85%

Asset turnover ratio = Sales / Average total asset

                                    = $2,346,873 / {($911,692 + $946,363) / 2}

                                    = 2,346,873 / 929,027.5

                                    = 2.53 times

Equity multiplier = Total assets / Net equity

                            = $946,363 / $456,414

                            = 2.07 times

ROE under DuPont = Profit margin × Asset turnover ratio × Equity multiplier

                                    = 3.85% × 2.53 times × 2.07 times

                                    = 20.16% (rounded answer)

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