Question

Henderson's Hardware has an ROA of 14%, a 7.5% profit margin, and an ROE of 23%. What is its total assets turnover? Do not round intermediate calculations. Round your answer to two decimal places. What is its equity multiplier? Do not round intermediate calculations. Round your answer to two decimal places.

Answer 1

Total assets turnover - 1.87

Equity multiplier = 1.64

Step-by-step explanation:

In this question, we use the DuPont Analysis which is shown below:

Return On Assets = Net profit margin × Total assets turnover

14% = 7.5% × Total assets turnover

So, the total assets turnover = 1.87

And, The Return On Equity = Return On Assets × Equity multiplier

23% = 14% × Equity multiplier

So, the Equity multiplier = 1.64