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Ch4Solutions

# Ch4Solutions - 43 ROA=10;PM=2;ROE=15;S/TA=;TA/E=...

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Chapter 4 Problem Solutions 4-3 ROA = 10%; PM = 2%; ROE = 15%; S/TA = ?; TA/E = ? ROA = NI/A; PM = NI/S; ROE = NI/E. ROA= PM  ×  S/TA NI/A = NI/S  ×  S/TA 10% = 2%  ×  S/TA S/TA= TATO = 5. ROE= PM  ×  S/TA  ×  TA/E NI/E = NI/S  ×  S/TA  ×  TA/E 15% = 2%  ×  5  ×  TA/E 15% = 10%  ×  TA/E TA/E= EM = 1.5. 4-14 ROE= Profit margin  ×  TA turnover  ×  Equity multiplier = NI/Sales  ×  Sales/TA  ×  TA/Equity. Now we need to determine the inputs for the extended Du Pont equation from the data that  were given.  On the left we set up an income statement, and we put numbers in it on the right: Sales (given) \$10,000,000 –  Cost        na                 EBIT (given) \$ 1,000,000 –  INT (given)      300,000 EBT \$    700,000 –  Taxes (34%)       238,000 NI \$    462,000 Now we can use some ratios to get some more data:

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Ch4Solutions - 43 ROA=10;PM=2;ROE=15;S/TA=;TA/E=...

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