A firm has a profit margin of 6% and an equity multiplier of 1.5. Its sales are $230 million, and it has total assets of $115 million. What is its ROE? Do not round intermediate calculations. Round your answer to two decimal places.

Question

Business

Drew Hammond

7 September, 05:58

A firm has a profit margin of 6% and an equity multiplier of 1.5. Its sales are $230 million, and it has total assets of $115 million. What is its ROE? Do not round intermediate calculations. Round your answer to two decimal places.

+3

Answers (1)

Know the Answer?

Tiffany Frey · Answer 1

18%

Explanation:

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

ROE = Profit margin * Total assets turnover * Equity multiplier

ROE = 6% * 2 * 1.5

= 18%

The total assets turnover is shown below:

= Sales : total assets

= $230 million : $115 million

= 2

Simply we apply the ROE formula in which the profit margin is multiplied with the total assets turnover and the equity multiplier