Reading 35: Financial Analysis Techniques-LOS f 习题精选 2011, interpret, return, center, equity

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Session 8: Financial Reporting and Analysis: The Income Statement, Balance Sheet, and Cash Flow Statement
Reading 35: Financial Analysis Techniques

LOS f: Demonstrate the application of and interpret changes in the component parts of the DuPont analysis (the decomposition of return on equity).

 

 

An analyst has gathered the following information about a company:

Balance Sheet
Assets
	Cash	100
	Accounts Receivable	750
	Marketable Securities	300
	Inventory	850
	Property, Plant & Equip	900
	Accumulated Depreciation	(150)
Total Assets		2750
Liabilities and Equity
	Accounts Payable	300
	Short-Term Debt	130
	Long-Term Debt	700
	Common Equity	1000
	Retained Earnings	620
Total Liab. and Stockholder's equity		2750
Income Statement
Sales		1500
COGS		1100
Gross Profit		400
SG&A		150
Operating Profit		250
Interest Expense		25
Taxes		75
Net Income		150

What is the ROE?

A) 10.7%.

B) 9.9%.

C) 9.3%.

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ROE = 150(NI) / [1000(common) + 620(RE)] = 150 / 1620 = 0.0926 or 9.3%

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When the return on equity equation (ROE) is decomposed using the original DuPont system, what three ratios comprise the components of ROE?

A) Net profit margin, asset turnover, asset multiplier.

B) Gross profit margin, asset turnover, equity multiplier.

C) Net profit margin, asset turnover, equity multiplier.

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The three ratios can be further decomposed as follows:

Net profit margin = net income/sales

Asset turnover = sales/assets

Equity multiplier = assets/equity

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Which of the following ratios is NOT part of the original DuPont system?

A) Asset turnover.

B) Debt to total capital.

C) Equity multiplier.

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The debt to total capital ratio is not part of the original DuPont system. The firm’s leverage is accounted for through the equity multiplier.

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If a firm has a net profit margin of 0.05, an asset turnover of 1.465, and a leverage ratio of 1.66, what is the firm's ROE?

A) 3.18%.

B) 5.87%.

C) 12.16%.

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One of the many ways to express ROE = net profit margin × asset turnover × leverage ratio

ROE = (0.05)(1.465)(1.66) = 0.1216

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Given the following information about a firm what is its return on equity (ROE)?

• An asset turnover of 1.2.
• An after tax profit margin of 10%.
• A financial leverage multiplier of 1.5.

A) 0.09.

B) 0.18.

C) 0.12.

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ROE = (EAT / S)(S / A)(A / EQ)
ROE = (0.1)(1.2)(1.5) = 0.18

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With other variables remaining constant, if profit margin rises, ROE will:

A) increase.

B) fall.

C) remain the same.

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The DuPont equation shows clearly that ROE will increase as profit margin increases, as long as asset turn and leverage do not fall.

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If a company has a net profit margin of 15%, an asset turnover ratio of 4.5 and a ROE of 18%, what is the equity multiplier?

A) 0.267.

B) 2.667.

C) 0.523.

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There are many different ways to illustrate ROE one of which is:

ROE = (net profit margin)(asset turnover)(equity multiplier)

0.18 = (0.15)(4.5)(equity multiplier)

0.18 ÷ [(0.15)(4.5)] = equity multiplier

0.18 ÷ 0.675 = equity multiplier

0.18 ÷ 0.675 = 0.267

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What is the net income of a firm that has a return on equity of 12%, a leverage ratio of 1.5, an asset turnover of 2, and revenue of $1 million?

A) $360,000.

B) $40,000.

C) $36,000.

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The traditional DuPont system is given as:

ROE = (net profit margin)(asset turnover)(leverage ratio)

Solving for the net profit margin yields:

0.12 = (net profit margin) × (2) × (1.5)

 0.04 = (net profit margin)

Recognizing that the net profit margin is equal to net income / revenue we can substitute that relationship into the above equation and solve for net income:

0.04 = net income / revenue = net income / $1,000,000 

$40,000 = net income.

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What is a company’s equity if their return on equity (ROE) is 12%, and their net income is $10 million?

A) $83,333,333.

B) $120,000,000.

C) $1,200,000.

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One of the many ways ROE can be expressed is: ROE = net income / equity

0.12 = $10,000,000 / equity

Equity = $10,000,000 / 0.12 = $83,333,333