The Golden Eagle Corporation has the following items on their income and balance

Question

The Golden Eagle Corporation has the following items on their income and balance sheets (values in tables are in thousands:

Balance Sheet Items
(Assets)

Balance Sheet Items
(Liabilities)

Income Statement Items

Using the Dupont System of Analysis, what is the Return on Equity last year for Golden Eagle? (show answers to four decimal places.) (Express answer as .XXXX)

Last Year Two Years Ago Cash 500 500 Accounts Receivable 580 490 Inventory 283 279 Total Current Assets Fixed Assets 4700 5100 Depreciation 2375 2071 Net Fixed Assets

Explanation / Answer

ROE = Net profit margin × Asset turnover × Equity multiplier

ROE = (net profit ÷ sales) × (sales ÷ assets) × (assets ÷ equity)

Net profit margin = net profit ÷ sales

Net profit = Sales - Cost of Goods sold - Operating Expenses - Interest paid - Taxes paid

= 3120 - 1840 - 565 - 96 - 85 = 534

Net profit margin = 534/3120 = 0.1711

Assets turnover = sales ÷ assets

Total assets = Total current assets + Net fixed assets = 500+580+283+4700-2375 = 3688

Assets turnover = 3120/3688 = 0.8459

Equity multiplier = assets ÷ equity

Shareholders' Equity = Common stock + Retained earnings = 3294+1435 = 4729

Equity multiplier = 3688/4729 =0.7798

ROE = Net profit margin × Asset turnover × Equity multiplier = 0.1711*0.8459*0.7798 = 0.1128

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