Lawrence Company included the following items in its financial statements for 20

Question

Lawrence Company included the following items in its financial statements for 2016, the current year (amounts in millions): (click the icon to view the financial statement items.) Requirements 1. Use DuPont Analysis to compute Lawrence's return on assets and return on common equity during 2016 (the current year). Lawrence has no preferred stock 2. 3. outstanding Do the company's rates of return look strong or weak? Give your reason. What additional information do you need to make the decision in requirement 2? Requirement 1. Use DuPont Analysis to compute Lawrence's return on assets and return on common equity during 2016 (the current year). Lawrence has no preferred stock outstanding. Start by calculating the rate of return on total assets (ROA). Select the DuPont model formula needed and then enter the amounts to calculate ROA for 2016. (Dividends paid are not preferred. Round percentages to one decimal place, XX% and other component ratios to three decimal places, XXXX) ROA

Explanation / Answer

1)ROA=(Net income/sales)*(Sales/Assets)
=Profit margin*asset turnover
Profit margin=1878/20000
=9.39%
Asset turnover=20000/(32311+23479)=0.36
ROA=9.39%*0.36=3.37%
ROE=profit margin*Asset turnover*equity multiplier
=9.39%*0.36*(1+(32311/23479))
=8.03%

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