Some recent financial statements for Smolira Golf Corp. The company\'s profit ma

Question

Some recent financial statements for Smolira Golf Corp. The company's profit margin is percent. (Use year-end figures rather than average values where appropriate. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) The total asset turnover is multiplier is times. (Round your answer to 2 decimal places, e.g., 32.16.) The equity times. (Round your answer to 2 decimal places, e.g., 32.16.) Using the Du Pont Identity, the company's ROE is percent. (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Explanation / Answer

Average Assets = (387,891 + 432,000)/2 = $409,945.5

Average Equity = (250,936 + 275,000)/2 = $262,968

Profit Margin = Net Income/Sales = 45,064/336,329 = 13.40%

Total Asset Turnover ratio = Sales/Average Total assets = 336,329/409,945.5 = 0.82

Equity Multiplier = Average Total Assets/Average Total Equity= 409,945.5/262,968 = 1.559

ROE = 13.40% * 0.82 * 1.559 = 17.14%

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In this question, we have assumed average assets and equity, which is the real word norm of applying those ratios.

However, if you were to use total assets and total equity as of YE 2015.

Asset turnover = 336,329/432,000 = 0.779

Equity multiplier = 432,000/275,000 = 1.571

ROE = 13.40% * 0.779 * 1.571 = 16.39%

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