Question

Consider a retail firm with a net profit margin of 3.22 %​, a total asset turnover of 1.76​, total assets of $ 45.8 ​million, and a book value of equity of $ 18.4 million. a. What is the​ firm's current​ ROE?

Answer 1

Answer: 14.106%

Step-by-step explanation:

The basic formula for calculating the Return on Equity is,

ROE = Net Income / Total Equity

How since we are missing some figures we can use the DuPont Formula for calculating the ROE that uses the components of the Net Income and Total Equity.

Using the DuPont Formula,

ROE = Net Profit margin x Asset Turnover x Assets / Equity

Plugging in the figures would be,

ROE = 0.0322 x 1.76 x (45.8/18.4)

= 0.141064

= 14.106 %