3 Doublewide Dealers has an ROA of 10 a 2 profit margin and

3, Doublewide Dealers has an ROA of 10%, a 2% profit margin, and an ROE of 15%, what is its total assets turnover? What is its equity multiplier? (Use DuPon equation)

Solution

Requirement 1. Total Asset Turnover

Return on Asset [ROA]= 10%,

Profit margin [PM]= 2%,

Return on Equity [ROE]= 15%

ROA= Net Income(NI) / Total Assets(TA)

Profit margin = Net Income(NI) / Sales(S)

Return on Equity [ROE]= Net Income(NI) / Equity(E)

Return on Assets[ROA] = profit Margin x Total Asset Turnover

10% = 2% x Total Asset Turnover

Total Asset Turnover = 10/2

Total Asset Turnover = 5 Times

“ Total Asset Turnover = 5 Times “

Requirement 2. Equity Multiplier

Return on Equity = profit Margin x Total Asset Turnover x Equity Multiplier

15 = 2 x 5 x Equity Multiplier

Equity multiplier = 15/10

Equity multiplier = 1.50

“ Equity multiplier = 1.50 “