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    Return on Equity

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    An analyst applies the Du Pont system of financial analysis to the following data for a company:

    Leverage ratio (assets/equity) = 2.2
    Total asset turnover = 2.0
    Net profit margin = 5.5%
    Divident payout ratio = 31.8%

    Given that ROE = (Net profits/Pretax profits) x (Pretax profits/EBIT) x (EBIT/Sales) x (Sales/Assets) x (Assets/Equity)

    Find the company's return on equity (ROE).

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    https://brainmass.com/business/financial-ratios/return-equity-dupont-equation-63993

    Solution Preview

    It is given that,

    ROE = (Net profits/Pretax profits) x (Pretax profits/EBIT) x (EBIT/Sales) x (Sales/Assets) x (Assets/Equity)

    If we take only (Net profits/Pretax profits) x (Pretax profits/EBIT) x ...

    Solution Summary

    The solution explains the calculation of ROE using the DuPont equation

    $2.19

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