Question

Bethesda Mining Company reports the following balance sheet information for 2015 and 2016.

BETHESDA MINING COMPANY
Balance Sheets as of December 31, 2015 and 2016

2015 2016 2015 2016 Assets Liabilities and-
Owners’ Equity
Current assets Current liabilities
Cash $47,858 $60,783 Accounts payable $190,422 $198,111 Accounts receivable 61,781 82,139 Notes payable 85,520 137,088
Inventory 124,912 190,747 Total $275,942 $335,199
Total $234,551 $333,669 Long-term debt $238,000 $174,750
Owners’ equity
Common stock &-
paid-in surplus $217,000 $217,000 Fixed assets Accumulated
retained earnings 161,656 196,348
Net plant- $658,047 $589,628 Total $378,656 $413,348
and equipment
Total assets $ 892,598 $ 923,297 Total liabilities- $892,598 $923,297
and owners’ equity

Suppose that the Bethesda Mining Company had sales of $2,246,873 and net income of $100,381 for the year ending December 31, 2016.
Calculate ROE using the DuPont identity. (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16. Enter the profit margin and return on equity as a percent.)

Answer 1

Answer: return on equity = 29.31%

Step-by-step explanation:

DuPont analysis

net income = 100381

sales = 2246873

total assets = 892598

total shareholders equity = 217000

**total debt = 565510

return on equity = profit margin × asset turnover × financial leverage

return on equity = (net income/sales) × (sales/total assets) × (total debt/total shareholders equity)

return on equity = (100381/ 2246873) × (2246873/ 892598) × (565510 /217000)

return on equity = 0.044675867 × 2.5172836 × 2.6066039866

return on equity = 4.4675867% × 2.5172836 × 2.6066039866

return on equity = 29.3143 = 29.31%

**

total debt workings = account payable + notes payable + long term debt

190422 + 137088 + 238000 =565510

DuPont analysis seeks to measure and critically analyse a company's ability increase its return on equity. DuPont analysis dissects the return on equity ratio, provide a clear diagnosis with regards to

what decreases or increases the return on equity and helps

identify areas where a company should improve in order to increase shareholders return.

the return on equity is 29.31%. profit margin is 4.467%, mean income is 4.467% of sales revenue.95.533% of sales revenue goes to expenses,that is one area that needs improvement

the company try to manage expenses.

Answer 2

ROE for Bethesda Mining company = 24.28%

Step-by-step explanation:

ROE using Du Pont =
`(net profit)/(sales)`×
`(sales)/(assets)`×
`(assets)/(equity)`

the simple way is to solve the equation before substituting. The asset numerator cancels the asset denominator so does the sales numerator to the sales denominator.

so we are left with ROE =
`(net profit)/(equity)` = 100,381 / 413348 = 24.28%