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