4.8 DuPont equation: The RangoonTimber Company has the following relationships:

Question

4.8       DuPont equation: The RangoonTimber Company has the following relationships:            Sales/Total assets = 2.23;        ROA = 9.69%;           ROE =16.4%             What are Rangoon’s profit margin and debt ratio? Debt Ratio Profit Margin                 0.41 3.7742% I'm not sure if I calculated Profit Margin Correctly inRed. Any help is great appreciated! Debt Ratio Profit Margin                 0.41 3.7742% I'm not sure if I calculated Profit Margin Correctly inRed. Any help is great appreciated! 4.8       DuPont equation: The RangoonTimber Company has the following relationships:            Sales/Total assets = 2.23;        ROA = 9.69%;           ROE =16.4%             What are Rangoon’s profit margin and debt ratio?

Explanation / Answer

Total assets turnover ratio (ATR) =Sales/Total assets =2.23 ROA = Net income available to commonstockholders/Total assets = 9.69% ROE = ROA * Equity multiplier = 16.4%
Total assets turnover ratio (ATR) =Sales/Total assets =2.23 ROA = Net income available to commonstockholders/Total assets = 9.69% ROE = ROA * Equity multiplier = 16.4%
So Equity Multiplier = ROE/ROA = 16.4%/9.69% = 1.69
Debt ratio = 1 - 1/Equity multiplier = 1-1/1.69 = 1- 0.59= 0.41 Debt ratio = 1 - 1/Equity multiplier = 1-1/1.69 = 1- 0.59= 0.41
Profit margin = Net income available to commonstockholders/Sales Profit margin = Net income available to commonstockholders/Sales = (Net income available to commonstockholders/Total assets) /  (Sales/Total assets) = ROA/ATR = 9.69%/2.23 = 0.0969/2.23 = 0.0434 =4.34% So Profit Margin = 4.34%

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