Question

Some recent financial statements for Smolira Golf, Inc., follow.

SMOLIRA GOLF, INC. Balance Sheets as of December 31, 2015 and 2016
	2015				2016					2015				2016
Assets									Liabilities and Owners’ Equity
Current assets									Current liabilities
Cash	$	3,251			$	3,407			Accounts payable	$	2,143			$	2,580
Accounts receivable		4,777				5,801			Notes payable		1,740				2,096
Inventory		12,438				13,802			Other		88				105
Total	$	20,466			$	23,010			Total	$	3,971			$	4,781
									Long-term debt	$	13,600			$	16,360
									Owners’ equity
									Common stock and paid-in surplus	$	37,000			$	37,000
Fixed assets									Accumulated retained earnings		15,644				38,966
Net plant and equipment	$	49,749			$	74,097			Total	$	52,644			$	75,966
Total assets	$	70,215			$	97,107			Total liabilities and owners’ equity	$	70,215			$	97,107

  

SMOLIRA GOLF, INC. 2016 Income Statement
Sales			$	186,970
Cost of goods sold				126,003
Depreciation				5,353
EBIT			$	55,614
Interest paid				1,450
Taxable income			$	54,164
Taxes				18,957
Net income			$	35,207
Dividends	$	11,885
Retained earnings		23,322

Construct the DuPont identity for Smolira Golf. (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16. Enter the profit margin and return on equity as a percent.)

Profit margin		%
Total asset turnover		times
Equity multiplier		times
Return on equity		%

Answer 1

Solution:
	Profit margin	18.83%
	Total asset turnover	1.93 times
	Equity multiplier	1.28 times
	Return on equity	46.35%
Working Notes:
	Profit margin = Net income / Sales
	=$35,207/$186,970
	=0.188302936
	=18.8302936 %
	=18.83%
	Total asset turnover = Sales / Total assets
	=$186,970/$97,107
	=1.925401876
	=1.93 times
	Equity multiplier = Total assets / Total equity
	=$97,107/$75,966
	=1.278295553 times
	=1.28 times
	Using the DuPont identity to calculate ROE
	Return on Equity (ROE) = (Profit margin)(total asset turnover)(Equity multiplier)
	ROE = (Net income / Sales)(Sales / total assets)(total asset / total equity)
	ROE=($35,207/$186,970)($186,970/$97,107)($97,107/$75,966)
	ROE=0.463457336
	ROE=46.35 %
Please feel free to ask if anything about above solution in comment section of the question.