Some recent financial statements for Smolira Golf Corp. follow. SMOLIRA GOLF COR

Question

Some recent financial statements for Smolira Golf Corp. follow. SMOLIRA GOLF CORP. 2014 and 2015 Balance Sheets Assets Liabilities and Owners’ Equity 2014 2015 2014 2015 Current assets Current liabilities Cash $ 24,226 $ 25,900 Accounts payable $ 24,984 $ 28,900 Accounts receivable 14,248 17,000 Notes payable 17,000 12,600 Inventory 27,802 28,900 Other 13,371 17,500 Total $ 66,276 $ 71,800 Total $ 55,355 $ 59,000 Long-term debt $ 124,000 $ 132,000 Owners’ equity Common stock and paid-in surplus $ 60,000 $ 60,000 Accumulated retained earnings 169,616 185,000 Fixed assets Net plant and equipment $ 342,695 $ 364,200 Total $ 229,616 $ 245,000 Total assets $ 408,971 $ 436,000 Total liabilities and owners’ equity $ 408,971 $ 436,000 SMOLIRA GOLF CORP. 2015 Income Statement Sales $ 390,477 Cost of goods sold 261,500 Depreciation 50,900 Earnings before interest and taxes $ 78,077 Interest paid 16,100 Taxable income $ 61,977 Taxes (30%) 18,593 Net income $ 43,384 Dividends $ 28,000 Retained earnings 15,384 The company's profit margin is percent. (Use year-end figures rather than average values where appropriate. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) The total asset turnover is times. (Round your answer to 2 decimal places, e.g., 32.16.) The equity multiplier is times. (Round your answer to 2 decimal places, e.g., 32.16.) Using the Du Pont Identity, the company's ROE is percent. (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Explanation / Answer

To compute the ROE using Dupont = Profit margin* asset turnover * equity multiplier

= Profit /Sales *Sales/Total asset * total asset /Total Equity

Profit margin = 43384/390477

=11.11%

Asset turnover ration = Sales /Total Asset

= 390477/436000

=89.55%

Equity multiplier = Total asset /Total equity

= 436000/60000+185000

=1.78

Hence ROE = 11.11%*89.55%*1.78

ROE = 17.70%

Thank you.

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