36) For the following firms, find the return on equity using the three component
ID: 2812526 • Letter: 3
Question
36) For the following firms, find the return on equity using the three components of the DuPont identity: operating efficiency, as measured by the profit margin (net income/sales); asset management efficiency, as measured by asset turnover (sales/total assets); and financial leverage, as measured by the equity multiplier (total assets/total equity) Financial Information ($ in millions, 2013) Company PepsiCo Coca-Cola McDonald's $28,106 Sales $66,415 $46,854 Net Income $6,740 $8,584 $5,856 Total AssetsLiabilities $77,487 $90,055 $36,626 $53,199 $56,882 $20,617Explanation / Answer
For PepsiCo
Profit margin = Net income/Sales
= 6,740/66,415
= 0.1015
Assets turnover = Sales/Total assets
= 66,415/77,487
= 0.8571
Total equity = Total assets - Total liabilities
= 77,487 - 53,199
= $24,288
Equity multiplier = Total assets/Total equity
= 77,487/24,288
= 3.19
Return on equity = Profit margin x Assets turnover x Equity multiplier
= 0.1015 x 0.8571 x 3.19
= 0.2775
= 27.75%
For Coca Cola
Profit margin = Net income/Sales
= 8,584/46,854
= 0.1832
Assets turnover = Sales/Total assets
= 46,854/90,055
= 0.5203
Total equity = Total assets - Total liabilities
= 90,055 - 56,882
= $33,173
Equity multiplier = Total assets/Total equity
= 90,055/33,173
= 2.71
Return on equity = Profit margin x Assets turnover x Equity multiplier
= 0.1832 x 0.5203 x 2.71
= 0.2583
= 25.83%
For McDonald's
Profit margin = Net income/Sales
= 5,856/28,106
= 0.2083
Assets turnover = Sales/Total assets
= 28,106/36,626
= 0.7674
Total equity = Total assets - Total liabilities
= 36,626 - 20,617
= $16,009
Equity multiplier = Total assets/Total equity
= 36,626/16,009
= 2.29
Return on equity = Profit margin x Assets turnover x Equity multiplier
= 0.2083 x 0.7674 x 2.29
= 0.3661
= 36.61%
Kindly give a positive rating if you are satisfied with the answer. Feel free to ask if you have any doubt. Thanks.
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.