Homework SourseA companys revenue is four times that of its average assets
A company’s revenue is four times that of its average assets for the year. If it earned net income of $50M on revenues of $1.6B, use the DuPont Analysis to determine its ROA. What would the Equity Multiplier (average assets divided by average equity) need to be for this firm to have an ROE of 20%?
Solution
assets = 1.6/4 B = 400 M
ROA = 50/400 = 12.50%
equity = 50/0.2 = 250M
Equity multiplier = 400/250
Equity multiplier = 1.60
