Using the Du Pont method, evaluate the effects of the following relationships fo

Question

Using the Du Pont method, evaluate the effects of the following relationships for the Lollar Corporation.

Lollar Corporation has a profit margin of 7.5 percent and its return on assets (investment) is 21.50 percent. What is its assets turnover ratio?(Enter only numeric value rounded to 2 decimal places.)

If the Lollar Corporation has a debt-to-total-assets ratio of 50 percent, what would the firm

Using the Du Pont method, evaluate the effects of the following relationships for the Lollar Corporation.

Explanation / Answer

ROE = Profit Margin (Profit/Sales) * Total Asset Turnover (Sales/Assets) * Equity Multiplier (Assets/Equity)

a. 21.5%= 7.5%*assets turnover

=>assets turnover = 21.5%/7.5%

=2.87

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ROE = 7.5%*2.87*1

=21.5%

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ROE = 7.5%*2.87*(35%/65%)

=11.59%

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