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multiplier is 1.64. Using DuPont analysis, determine if the company's return on equity is above or below the industry average and what factor causes the difference?

multiplier is 1.64. Using DuPont analysis, determine if the company's return on equity is above or below the industry average and what factor causes the difference?

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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A company's assets consist of $200,000 of cash, $400,000 of accounts receivable, $600,000 of inventory, and $1,500,000 of plant and equipment. Its liabilities consist of $100,000 of accounts payable, $150,000 of accruals, and $800,000 of long-term debt. The company's annual sales are $5,000,000, its earnings before interest and taxes are $700,000, and its net income is $300,000. In its industry, the average profit margin is 5.62%, the average total asset turnover is 1.85, and the average equity multiplier is 1.64. Using DuPont analysis, determine if the company's return on equity is above or below the industry average and what factor causes the difference? A) Below, total asset turnover B) Above, profit margin C) Above, total asset turnover D) Below, profit margin E) Below, equity multiplier
Transcribed Image Text:A company's assets consist of $200,000 of cash, $400,000 of accounts receivable, $600,000 of inventory, and $1,500,000 of plant and equipment. Its liabilities consist of $100,000 of accounts payable, $150,000 of accruals, and $800,000 of long-term debt. The company's annual sales are $5,000,000, its earnings before interest and taxes are $700,000, and its net income is $300,000. In its industry, the average profit margin is 5.62%, the average total asset turnover is 1.85, and the average equity multiplier is 1.64. Using DuPont analysis, determine if the company's return on equity is above or below the industry average and what factor causes the difference? A) Below, total asset turnover B) Above, profit margin C) Above, total asset turnover D) Below, profit margin E) Below, equity multiplier
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