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Calculating ROE Using DuPont Method

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Using the annual report information available on each of the company's websites: compute the ROE for Yahoo and Google.

Please use the DuPont Method =(Net Profit Margin) x (Asset Turnover) x (Equity Multiplier) for Year End 2010 for each company.

Please show calculations.

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We note that

ROE = (Profit margin)*(Asset turnover)*(Equity multiplier) = (Net profit/Sales)*(Sales/Assets)*(Assets/Equity)

For Yahoo (figures in thousands)

Net profit = 1,231,663

Sales (aka Revenue) = ...

Solution Summary

Calculating ROE Using DuPont Method

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Du Pont Method Effect on Equity

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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