Fundamentals of Financial Manageme...
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Fundamentals of Financial Manageme...
DuPONT AND NET INCOME Ebersoll Mining has $6 million in sales, its ROE is 12%, and its total assets turnover is 3.2x. Common equity on the firm’s balance sheet is 50% of its total assets. What is its net income?
To determine: Net income.
DuPont Analysis: Under DuPont analysis, return on equity can be calculated as a product of profit margin, total assets turnover and equity multiplier.
Solution:
Given,
Return on equity (ROE) is 12%.
Calculated values (working note),
Common equity is $937,500.
Calculate net income through ROE.
Formula to calculate return on equity,
Substitute 12% for return on equity and $937,500 for common equity.
Here, net income is $112,500.
Working note:
Given,
Sales are $6 million
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