Question

California Company included the following items in its financial statements for ​, the current year​ (amounts in​ millions):

Payment of long-term debt ......$17,300 Dividends paid ...........$225
Proceeds from Issuance Net sales:
of common stock 8,425 Current year 35,000
Total liabilities: Preceding year 78,000
Current year-end 32,319 Net income:
Preceding year-end 38,039 Current year 9,011
Total stockholders' equity Preceding year 2,010
Current year-end 23,473 Operating income:
Preceding year-end 14,037 Current year 9.126
Long-term liabilities 6,665 Preceding year 4,004
Requirement:
Use DuPont Analysis to calculate ​'s return on assets and return on common equity during ​(the current​ year). The company has no preferred stock outstanding. Start by calculating the rate of return on total assets​ (ROA). Select the DuPont model formula needed and then enter the amounts to calculate ROA for 2018.

Answer 1

3.83 %

Step-by-step explanation:

Using the DuPont model formula :

Return on Equity = Return on Assets x Assets / Equity

where,

Return on Assets = Profit Margin x Total Assets Turnover

= (Net Income / Sales) x ( Sales / Total Assets)

= ( $9,011 / $35,000) x ($35,000 / 23,473 + 32,319)

= 2,57% x 0.627

= 1.61 %

Assets / Equity = ( 23,473 + 32,319) ÷ 23,473

= 2.38

therefore,

Return on Equity = 1.61 % x 2.38 = 3.83 %