Question

In: Finance

company XYZ in 2015 is given : sales €500000, costs €332000 depreciation expense €120000 Interest expense...

company XYZ in 2015 is given : sales €500000, costs €332000 depreciation expense €120000 Interest expense €60000 dividends €16000 tax rate 35 percent

a) given this information prepare XYZ income statement

b) calculate XYZ profit margin

c) If company XYZ has total asset €250000 and equity multiplier 2.5 what is return on equity, what is return on equity (ROE) based on DU point identity.

d) discus the component of Du point identity

Expert Solution

a & b) Income statements and profit margins

XYZ Income Statement	Amount in EUR
Sales	500,000
Costs	-332,000
Earning before Depreciation interest and tax (EBITDA)	168,000
Depreciation expense	-120,000
Operating profit (EBIT)	48,000
Interest expense	-60,000
Profit before tax	-12,000
Income tax (at 35%)	4,200
Income after tax	-7,800
Dividends	-16,000
Retained earnings	-23,800

Profit margin
EBITDA margin	33.6%
Operating margin	9.6%
Net profit margin	-1.6%

Excel formula:

c)

Return on Equity = Net profit / Sales * Sales/ Total assets * equity multiplier (assets/equity)

= -7,800 / 500,000 * 500,000 / 250,000 * 2.5

Return on Equity = -7.8%

d) Component of Dupont

As per Dupont,

Return on Equity = Net profit / Sales * Sales/ Total assets * equity multiplier (assets/equity)

Return on Equity = Net profit margin * Asset turnover * Equity multiplier

jeff jeffy answered 2 years ago

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