Calculate the return on equity

Assignment Help Portfolio Management

Reference no: EM13229823

The DuPont formula defines the net return on shareholder's equity as a function of the following components:

Operating margin
Asset turnover
Interest burden
Financial leverage
Income tax rate

Using only the data in the following table shown below:

a. Calculate each of the five components listed above for 2010 and 2014, and calculate the return on equity (ROE) for 2010 and 2014, using all of the five components.

b. Briefly discuss the impact of the changes in asset turnoverand financial leverage on the change in ROE from 2010 to 2014.

Income Statement Data 2010 2014

Revenues $542 $979

Operating income 38 76

Depreciation and amortization 3 9

Interest expense 3 0

Pretax income 32 67

Income taxes 13 37

Net income after tax 1 9 30

Balance Sheet Data 2010 2014

Fixed assets $41 $70

Total assets 245 291

Working capital 123 157

Total debt 16 0

Total shareholder's equity 159 220

Attachment:- PM.docx

Reference no: EM13229823

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