ezto.mheducation.com Some recent financial statements for Smolira Golf, Inc, fol

Question

ezto.mheducation.com Some recent financial statements for Smolira Golf, Inc, follow. SMOLIRA GOLF, INC. Balance Sheets as of December 31, 2013 and 2014 2013 2014 2013 Equity 2014 Liabilities and Current assets Current liabilities Cash s 3,091 $ 3,107 Accounts payable 4,747 5,741 Notes payable 12,558 13,742 Other s 2,173 $ 2,640 1,770 2,156 Inventory 94 $20,396 $ 22,590 Total 4,037 $ 4,907 Long-term debt Owners' equity $13,000 $ 15,760 Common stock $40,000 $ 40,000 and paid-in surplus Accumulated retained earmings 15,674 39,404 $55,674 $ 79,404 $72,711 S100,071 Total liabilities and owners' equity $72,711 $100,071 Fixed assets Net plant and equipment $52,315 $ 77,481 Total Total assets 188,170 126,603 Cost of goods sold Depreciation EBIT 5,293 $ 56,274 1,390 $ 54,884 19,209 Taxes Net income $ 35,675 Dividends Retained earnings $ 11,945 23,730

Explanation / Answer

Profit= 35675

Sales = 188170

Average assets = (72711+100071)/2 = 41391

Average Equity = (55674+79404)/2 = 67539

Profit margin = profit / sales = 35675/188170 = 18%

Assets turn over = sales/total assets = 35675/41391 = 4.53

Equity multiplier = assets/ equity = 41391/67539 = 0.162

Return on equity = profit/equity    = 35675/67539 = 53%

dupont identity

Return on equity = Equity multiplier x Assets turn over x Profit margin

                        53% = 0.162*4.53*18%

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