Return on equity for the company company

rosemary2011

Dividend payout ratio 30.5%
Net profit margin 6%
total asset turnover 1.8
equity 1.8

Does anyone know a simple way to solve this

Thank you in advance

navin404

dontknow1987

I think the problem is missing at least one input parameter.

Micholien

Alright, If Net profit margin is 6% this means NI must be $6 and sales is $100. Then ROE=NI/OE (Owners Equity)=$6/1.8=3.33%.

Again I'm assuming that since NPM=6%, then sales would be 100 and NI is 6.

Does that make sense!

ogoluwa

I don't think Abokhaled's answer is right because it doesn't include the impact of leverage....having said that, I don't know how to get the right answer either.

ROE is net income / average total equity

you can also use dupont, which we seem to have 2 of the 3 parts of:
(net income/revenue) * (revenue/average assets) * (average assets/average equity)

lastly i guess you could derive from the growth rate used in gordon growth model
Growth rate = ROE * Retention Rate
therefore ROE = growth rate / retention rate

But -- I still can't see how to use any of these to get the answer. Anyone?

rgonzalez

I agree with you, need definitely need the multiplier to get ROE, and I had a similar thought about using the Gordon Growth Model too, but do not see enough information here to solve the problem with those two methods.

FVPV

To answer the others questions, the question is . Return on equity for company "a" is-



Edited 1 time(s). Last edit at Tuesday, April 19, 2011 at 05:58AM by navin404.

Kiakaha

I think you are correct

It could be 10.8%
or
12.6%

You made it look very simple, but it's a confusing question

manasib

I think the answer is:

= Net profit margin*total asset turnover= NI/Sales*Sales/Asset=0.06*1.8=0.108...

Please someone correct if I'm wrong?

cchang

Whats the question? solve what?

eagles_dare13

What do you mean 'equity 1.8', is that a dollar figure?