Question

Manufacturer A has a profit margin of 2.0%, an asset turnover of 1.7 and an equity multiplier of 4.9. Manufacturer B has a profit margin of 2.3%, an asset turnover of 1.1 and an equity multiplier of 4.7. How much asset turnover should manufacturer B have to match manufacturer A's ROE?

Answer 1

1.54

Step-by-step explanation:

As we know that

The DuPont Analysis is

ROE = Profit margin × Total assets turnover × Equity multiplier

So we considered this formula for Manufacturer A and Manufactured B

Profit margin × Total assets turnover × Equity multiplier = Profit margin × Total assets turnover × Equity multiplier

2.0% × 1.7 × 4.9 = 2.3% × Asset turnover × 4.7

16.66% = 10.81% × Asset turnover

So, the asset turnover is 1.54

We equate this formula for both Manufactured A and manufactured B