EBK ESSENTIALS OF INVESTMENTS
EBK ESSENTIALS OF INVESTMENTS
10th Edition
ISBN: 8220102800267
Author: Bodie
Publisher: YUZU
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Chapter 14, Problem 6CP
Summary Introduction

(a)

To Determine:

To determine the all components of Du Pont Formula.

Introduction:

Du Pont formula is used for analyzing fundamental performance of company or firm which decomposes the different drivers of returns on equity. There is a determination of net margin, asset turnover ratio and financial leverage.

Summary Introduction

(b)

To Determine:

To determine ROE for 2009 using the components of Du Pont Formula.

Introduction:

Du Pont formula is used for analyzing fundamental performance of company or firm which decomposes the different drivers of returns on equity. There is a determination of net margin, asset turnover ratio and financial leverage.

We have the formula for the return on common shareholder's equity ratio as below:

  ROE =Net Income-preferred dividendsAverage common equity

Summary Introduction

(c)

To Determine:

To determine the sustainable growth rate for 2009 by use of ROE and Plowback ratio.

Introduction:

Du Pont formula is used for analyzing fundamental performance of company or firm which decomposes the different drivers of returns on equity. There is a determination of net margin, asset turnover ratio and financial leverage.

For any company or organization, sustainable growth rate plays an important function to deal with being over-leveraged and avoid financial stress.

It involves in maximizing sales and revenue growth without raising any financial leverage.

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