Dupont Model and Return on Equity
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Compute the ROE for 2013 and 2014 using the DuPont model based on Brown's 2014 annual report information below. Show work.
2014
Average Assets: $4,567.3
Average Shareholder's Equity: 3,545.6
Net Sales: 15,675.4
Net Income: 1,257.8
2013
Average Assets: $4,235.2
Average Shareholder's Equity: 2895.8
Net Sales: 13,267.9
Net Income: 987.9
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Solution Summary
This solution computes a company's return on equity for 2 annual periods, using a Dupont framework. The Dupont model is briefly explained here and demonstrated how to use in other company situations.
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The Dupont model looks at three components of a company, its financial leverage (measured by equity multiplier), asset efficiency (asset turnover) and operating efficiency (profit margin). It is represented in the following way:
ROE = (Profit margin)*(Asset turnover)*(Equity ...
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