Profit margin (%)Total asset turnoverEquity multiplierROECompany A 201833.20.3451.20 201929.50.4061.26 202036.90.3301.13 Company B 201836.90.4631.30 201933.50.3601.23 202026.20.4361.36 Calculate ROE for both companies and interpret your answer. Which company will you prefer for investment in 2018, 2019 and 2020? Explain.Interpret the values in profit margin, total asset turnover and equity multiplier. Will your investment decision for 2018, 2019 and 2020 change once you use DuPont identity instead of ROE? Explain.Note- answer both the parts of the question

ROE or Return on equity is net profit after tax (PAT) divided by shareholder's equity. ROE shows how…

Answered: Calculate ROE for both companies and…

Fundamentals of Financial Management, Concise Edition (MindTap Course List)

9th Edition

ISBN:9781305635937

Author:Eugene F. Brigham, Joel F. Houston

Publisher:Eugene F. Brigham, Joel F. Houston

Chapter4: Analysis Of Financial Statements

Section: Chapter Questions

Problem 7DQ: From the Google Finance site, use the DuPont analysis to determine the total assets turnover ratio...

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	Profit margin (%)	Total asset turnover	Equity multiplier	ROE
Company A
2018	33.2	0.345	1.20
2019	29.5	0.406	1.26
2020	36.9	0.330	1.13
Company B
2018	36.9	0.463	1.30
2019	33.5	0.360	1.23
2020	26.2	0.436	1.36

Calculate ROE for both companies and interpret your answer. Which company will you prefer for investment in 2018, 2019 and 2020? Explain.
Interpret the values in profit margin, total asset turnover and equity multiplier. Will your investment decision for 2018, 2019 and 2020 change once you use DuPont identity instead of ROE? Explain.

Note- answer both the parts of the question

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