<<Finance 4310 Class Problem DuPont ROE>> Balance Sheet Income Statement Cash $
ID: 2819757 • Letter: #
Question
<<Finance 4310 Class Problem DuPont ROE>>
Balance Sheet
Income Statement
Cash
$ 5,200
Sales
$192,300
Accounts Receivable
16,800
Cost of Goods Sold
113,300
Inventory
32,500
Gross Profit
$ 79,000
Total Current Assets
$ 54,500
Cash Operating Expenses
$ 45,200
Fixed Assets
$171,000
Depreciation
$ 9,000
Less: Accumulated Depreciation
39,000
EBIT
$ 24,800
Net Fixed Assets
$132,000
Interest Expense
$ 6,700
Total Assets
$186,500
Taxable Income
$ 18,100
Taxes
$ 5,700
Accounts Payable
$ 6,100
Net Income
$ 12,400
Accrued Wages
8,700
Less: Dividend Payment
$ 6,500
Accrued Taxes
5,700
Addition to Retained Earnings
$ 5,900
Notes Payable
9,200
Total Current Liabilities
$ 29,700
Long Term Debt
$ 81,200
Total Liabilities
$ 110,900
Common Stock
$ 61,500
Retained Earnings
14,100
Total Equity
$ 75,600
Total Liabilities and Equity
$186,500
Use the financial statements above to calculate the firm’s DuPont ROE. Calculate ROE and each of its components for the firm and for the industry. Make a table of your results. Compare each component and ROE to the corresponding industry number.
Industry averages are as follows:
Industry average total debt to total asset ratio: 0.46
Industry average net profit margin: 7.2
percent Industry average ROE: 15.25%
Check Answers:
NPM
TAT
EM
DuPont ROE
Firm
6.45%
1.031
2.467
16.41%
Industry
7.2%
1.144
1.852
15.25%
Balance Sheet
Income Statement
Cash
$ 5,200
Sales
$192,300
Accounts Receivable
16,800
Cost of Goods Sold
113,300
Inventory
32,500
Gross Profit
$ 79,000
Total Current Assets
$ 54,500
Cash Operating Expenses
$ 45,200
Fixed Assets
$171,000
Depreciation
$ 9,000
Less: Accumulated Depreciation
39,000
EBIT
$ 24,800
Net Fixed Assets
$132,000
Interest Expense
$ 6,700
Total Assets
$186,500
Taxable Income
$ 18,100
Taxes
$ 5,700
Accounts Payable
$ 6,100
Net Income
$ 12,400
Accrued Wages
8,700
Less: Dividend Payment
$ 6,500
Accrued Taxes
5,700
Addition to Retained Earnings
$ 5,900
Notes Payable
9,200
Total Current Liabilities
$ 29,700
Long Term Debt
$ 81,200
Total Liabilities
$ 110,900
Common Stock
$ 61,500
Retained Earnings
14,100
Total Equity
$ 75,600
Total Liabilities and Equity
$186,500
Explanation / Answer
FIRM
Net profit margin = Net Income/ Sales
= 12400/192300 = 6.45%
Equity multiplier= Total assets/Total equity
= 186500/75600 = 2.467
Total assets turnover = Sales/ Total assets
= 192300/186500 = 1.031
Du Pont ROE= NPM*EM*TAT
= 6.45%*2.467*1.031 =16.41%
INDUSTRY
Net profit margin= 7.2% (given)
EM = Total assets/ Equity = Total assets/ (Total assets-debt)
= 1/(1-0.46) = 1.852
ROE = 15.25% (Given)
TAT = ROE/ (NPM*EM) = 15.25%/(7.2%*1.852)
= 1.144
The Net profits of the firm are lower than industry. Equity multiplier is higher indicating higher reliance on debt. Total assets turnover is lesser which means that the firm is inefficient in generating sales from the assets. However the ROE is higher due to lower equity base.
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