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If Cantel, Inc., has current earnings of $17, dividends of $3.50, and a sustainable growth rate of 11%, what is its return on equity (ROE)?

A)
13.85%.
B)
17.64%.
C)
11.91%.


Cantel’s ROE is 13.85%:

ROE = 11% / [1 – ($3.50/$17.00)] = 13.85%

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In the five-part DuPont model ROE = (NI/EBT)(EBT/EBIT)(EBIT/sales)(sales/assets)(assets/equity), the product of the first three terms is:

A)
net profit margin.
B)
gross profit margin.
C)
operating profit margin.


(NI/EBT)(EBT/EBIT)(EBIT/sales) = (NI/sales) = net profit margin.

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