Question

Dupont Analysis: Henderson’s Hardware has an ROA of 11%, a 6% net margin, and an ROE of 23%. What is its total asset turnover? What is its equity multiplier?

A) Total Asset Turnover: 0.55, Equity Multiplier: 2.09
B) Total Asset Turnover: 1.91, Equity Multiplier: 3.83
C) Total Asset Turnover: 1.18, Equity Multiplier: 1.71
D) Total Asset Turnover: 2.09, Equity Multiplier: 0.55

Answer 1

Dupont Analysis for Henderson’s Hardware yields: Total Asset Turnover: 1.91 and Equity Multiplier: 3.83 (Option B).

Step-by-step explanation:

Dupont Analysis Components:

Return on Assets (ROA) is the product of Net Margin and Total Asset Turnover, while Return on Equity (ROE) is the product of ROA and Equity Multiplier.

Calculation of Total Asset Turnover:

Total Asset Turnover = ROA / Net Margin

Total Asset Turnover = 11% / 6% = 1.91

Calculation of Equity Multiplier:

Equity Multiplier = ROE / ROA

Equity Multiplier = 23% / 11% = 3.83

Selection of Correct Option:

Therefore, the correct option is B) Total Asset Turnover: 1.91, Equity Multiplier: 3.83, as these values align with the provided ROA, Net Margin, and ROE.

Option A/B/C/D is the answer, with Option B being correct.