Operating Capital

Question 1

What is the formula for DuPont ROE

Answer 1

Net Profit Margin x Asset Turnover x Financial Leverage

Net Profit Margin x Asset Turnover = ROA

Question 2

Net Profit Margin Formula

Answer 2

Net Income / Sales

Question 3

Asset Turnover Forumula

Answer 3

Sales / Average Total Assets

Question 4

Financial Leverage Definition and Formula

Answer 4

Average Total Assets / Equity

Extent to which a company uses debt in financing its operations.

Question 5

What are the Three Parts of the Extended DuPont Model?

Answer 5

Tax Burden = Net Income / Pre Tax Income - Retention of Profits after Taxes
Interest Burden = Pretax Income / EBIT - Income retained after paying interest to debt holders.
Operating Income Margin = EBIT / Sales - Profits earned on sales after paying operating costs

Question 6

What are the 5 parts of the Extended Dupont ROE Formula

Answer 6

Tax Burden ( Net Income / Pretax Income) x Interest Burden ( Pretax Income / EBIT) x Operting Income Margin (EBIT / Sales) x Asset Turnover (Sales / Average Total Assets) x Financial Leverage ( Average Total Assets / Equity)

Question 7

Residual Income Formula

Answer 7

Residual Income = Net Income (from the income statement) - Required Return (Net Book Value (Equity) x Hurdle Rate)
Assets - Liabilities = Equity then X % set by mgt. - CAPM