INVESTMENTS-CONNECT PLUS ACCESS
11th Edition
ISBN: 2810022611546
Author: Bodie
Publisher: MCG
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Chapter 19, Problem 8PS
Summary Introduction
To calculate: The
Introduction:
Dupont system: It is also called as Dupont model or Dupont analysis. It Is one of the financial ratios and is calculated on the basis of return on equity ratio. This system tries to explain how companies can increase their return for investors by breaking down the return on equity ratio.
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Solve this accounting question
Use the DuPont system and the following data to find return on equity. (Do not roun
intermediate calculations. Round your answer to 1 decimal place.)
Leverage ratio
Total asset
turnover
Net profit
margin
Dividend
payout ratio
Return on equity
2.9
2.7
6.2 %
33.2 %
%
Return on equity (ROE) using the traditional DuPont formula equals to
A.
(net profit margin) (interest component) (solvency ratio)
B.
(net profit margin) (interest component) (liquidity ratio)
C.
(net profit margin) (total asset turnover) (quick ratio)
D.
(net profit margin) (total asset turnover) (solvency ratio)
Chapter 19 Solutions
INVESTMENTS-CONNECT PLUS ACCESS
Ch. 19 - Prob. 1PSCh. 19 - Prob. 2PSCh. 19 - Prob. 3PSCh. 19 - Prob. 4PSCh. 19 - Prob. 5PSCh. 19 - Prob. 6PSCh. 19 - Prob. 7PSCh. 19 - Prob. 8PSCh. 19 - Prob. 9PSCh. 19 - Prob. 10PS
Ch. 19 - Prob. 11PSCh. 19 - Prob. 12PSCh. 19 - Prob. 13PSCh. 19 - Prob. 14PSCh. 19 - Prob. 15PSCh. 19 - Prob. 16PSCh. 19 - Prob. 1CPCh. 19 - Prob. 2CPCh. 19 - Prob. 3CPCh. 19 - Prob. 4CPCh. 19 - Prob. 5CPCh. 19 - Prob. 6CPCh. 19 - Prob. 7CPCh. 19 - Prob. 8CPCh. 19 - Prob. 9CPCh. 19 - Prob. 10CPCh. 19 - Prob. 11CPCh. 19 - Prob. 12CPCh. 19 - Prob. 13CP
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- Define each of the following terms: a. Liquid asset b. Liquidity ratios: current ratio; quick ratio c. Asset management ratios: inventory turnover ratio d. Debt management ratios: total debt to total capital; times-interest-earned (TIE) ratio e. Profitability ratios: profit margin; return on total assets (ROA); return on common equity (ROE); return on invested capital (ROIC); basic earning power (BEP) ratio f. Market value ratios: price/earnings (P/E) ratio; market/book (M/B) ratio; enterprise value/EBITDA ratioarrow_forwardEarning.arrow_forwardAssume that you are given the following ratios: Asset turn-over: -1.5x Return on Assets: -3% Return on equity: -5% What is the debt ratio?arrow_forward
- Analyze and explain:arrow_forwardThe ratio of liabilities to stockholders' equity measures how much of the company is financed by debt and equity. It is computed as follows: To illustrate, the ratio of liabilities to stockholders' equity for Lincoln Company is computed as follows Current Assets - CurrentLiabilities = Calculated Value 1. Working capital: Ratio Numerator ÷ Denominator = Calculated Value 2. Current ratio 3. Quick ratio 4. Accounts receivable turnover 5. Number of days' sales in receivables 6. Inventory turnover 7. Number of days' sales in inventory 8. Ratio of Fixed assets to long-term liabilities…arrow_forwardDefine each of the following terms:a. Liquid assetb. Liquidity ratios: current ratio; quick (acid test) ratioc. Asset management ratios: inventory turnover ratio; days sales outstanding (DSO);fixed assets turnover ratio; total assets turnover ratiod. Debt management ratios: total debt to total capital; times-interest-earned (TIE) ratioe. Profitability ratios: operating margin; profit margin; return on total assets (ROA);return on common equity (ROE); return on invested capital (ROIC); basic earning power (BEP) ratiof. Market value ratios: price/earnings (P/E) ratio; market/book (M/B) ratio; enterprise value/EBITDA ratio g. DuPont equation; benchmarking; trend analysish. “Window dressing” techniquesarrow_forward
- formula for the following:1. price earnings ratio2. dividend yield ratio3. dividend payout ratio4. interest earned per share ratio5. book value per share ratio6. times interest earned ratioarrow_forwardCompare, and contrast the ratio of toyota and teslaarrow_forwardIn a DuPont analysis, what are the components of return on assets?a. Net Profit Margin Ratio and Debt Ratiob. Net Profit Margin Ratio and Leverage Ratioc. Net Profit Margin Ratio and Asset Turnover Ratiod. Asset Turnover Ratio and Leverage Ratioarrow_forward
- DuPont system of analysis Use the following financial information for AT&T and Verizon to conduct a DuPont system of analysis for each company. Sales Earnings available for common stockholders Total assets Stockholders' equity a. Which company has the higher net profit margin? Higher asset turnover? b. Which company has the higher ROA? The higher ROE? c. Which company has the higher financial leverage multiplier? a. Net profit margin (Round to three decimal places.) AT&T Net profit margin AT&T $164,000 13,333 403,921 201,934 Verizon Verizon $126,280 13,608 244,280 24,232arrow_forwardA company has: Return on Asset 0.08 Cost of the debt 0.04. What is the Cost of Equity if the debt-equity ratio is 0.58arrow_forwardHolders earn?arrow_forward
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