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Du Pont Method Effect on Equity

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Please help with the following problems.

Using the Du Pont method, evaluate the effects of the following relationships for Moris Incorporated.

a. Moris Incorporated has a profit margin of 5 percent and its return on assets (investment) is 13.5 percent. What is its asset turnover ratio?

b. If Moris Incorporated has a debt-to-total-assets ratio of 60 percent, what will the firm's return on equity be?

c. What would happen to return on equity if the debt-to-total-assets ratio decreased to 40 percent?

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The solution includes a word file that explains step by step how to calculate the effects of certain actions on Moris Incorporated Return on Equity using the Du Pont Method.

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Asset Turnover ratio & return on equity

Using the Du Pont method, evaluate the effects of the following relationships for Moris Incorporated.

The Du Pont Identity:

ROE = Profit Margin - Total Assets Turnover - Equity Multiplier

ROE = Return on Assets ...

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Manal Elkhoshkhany, MBA
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  • MBA, California State University, Sacramento
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