Problem 46 DuPont and Roe A firm has a profit margin of 75 a

Problem 4-6 DuPont and Roe A firm has a profit margin of 7.5% and an equity multiplier of 2.0. Its sales are $60 million, and it has total assets of $24 million, what is its ROE? Round your answer to two decimal places

Solution

ROE = 37.5%

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Due Pont Analysis

ROE = Profit Margin* Asset turnover ratio* Equity Multiplier

         = Profit Margin* (Revenue/ Total asset)* Equity Multiplier

          = 0.075* (60000000/ 24000000)* 2

           = 0.075 * 2.5 * 2

            = 0.375 or 37.5%

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