DuPont identity Problem 3-18 DuPont ldentity [LO 3] The Cavo Company has an ROA

Question

DuPont identity Problem 3-18 DuPont ldentity [LO 3] The Cavo Company has an ROA of 8.2 percent, a profit margin of 1000 percent, and an ROE of 1600 percent. Requirement 1: What is the company^'s total asset turnover? (Do not round Intermediate calculations. Round your answer to 2 decimal places (eq., 32.16).) Total asset turnover times Requirement 2: What is the equity multiplier? (Do not round Intermediate calculations. Round your answer to 1 decimal places (e.g.. 32.16).) Equity multiplier times

Explanation / Answer

Answer:

Given that :

Return on assets (Profit / Assets)= 8.2% = 0.082

Profit Margin (Profit / Sales)   =10% =0.10

Hence

Total Assets turnover (Sales / Assets) = Return on assets / Profit Margin = 0.082 / 0.10 = 0.82 Times

Now as per Du pont formula :

Equity Multiplier = Return on equity / (Profit Margin * Total Assets turnover)

= 0.16 / (0.10 *0.82)

=0.16 / 0.082

= 1.95 times

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