Quiz 1 - DuPont analysis

Quiz 1 - DuPont analysis - net income = $1.95 million...

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net income = $1.95 million effective tax rate = 35% interest expense = $400,000 asset turnover = 2.0 $15 million in total assets - $7 million is debt -------- Equity = total assets - debt = $8 million ROE% = net income/equity = 0.2438 = 24.38% --------- Leverage ratio (aka Equity Multiplier) = assets/equity = $15 million/$8 million = 1.875 -------- Asset turnover = sales/assets Sales = total assets * asset turnover ratio = 15 million * 2.0 = 30 million Asset turnover = 2.0 --------- Profit margin = EBIT/sales = 3,400,000/30000000 = -26,600,000 EBIT = net income/(1-tax rate) + interest = 1.95 million/(1-0.35)+400,000 = 3,400,000 --------- Debt burden ratios = net income(net income + interest) = 1.95 million (1.95 million+400,000) ---------- Explaining what each one of these tells you about the health of a company: ROE stands for Return on Equity. This return measures a corporation’s profitability by revealing how much profit a company generates with the money shareholders have invested. This is a calculation many investors use to determine the health of a company based on their return on common equity.
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Leverage ratio helps generate an idea of the financial methods used within the company, but also
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