Question

DuPONT ANALYSIS

Henderson's Hardware has an ROA of 7%, a 6% profit margin, and an ROE of 16%.

What is its total assets turnover? Round your answer to two decimal places.

What is its equity multiplier? Round your answer to two decimal places.

Answer 1

Assets Turnover (Sales/Total Assets): An asset turnover is the ratio which how many times sales is happening within the orgnisation with respect to its assets, if it is lower than the indusrty average or prior years company average then it will be treated that company has over invested in the assets on the other side if it is lower as compare to industry/prior years then it will be treated that company getting maximum return or over utilising its assets

Assets Turnover ratio=ROA(Return/Total assets)/Profit margin(Return/sales)

ROA=7%

Profit Margin =6%

ROA=7%/6%

1.17

Times

Equity Multiplier: Quauntum of equity utilised in purchase of assets, if multipier is high then relatively small quantum of amount financed thourgh equity otherwise low means higher amount of equity invested in assets

Equity Multiplier=ROE(return/equity)/ROA(Return/Total assets)

ROA=7%

ROE=16%

Equity Multiplier=16%/7%

2.29

Times