Question

California Company included the following items in its financial statements for ​, the current year​ (amounts in​ millions):

Answer 1

Answer:

3.83 %

Explanation:

Using the  DuPont model formula :

Return on Equity = Return on Assets x Assets / Equity

where,

Return on Assets  = Profit Margin x Total Assets Turnover

                               = (Net Income / Sales) x ( Sales / Total Assets)

                               = ( $9,011 / $35,000) x ($35,000 / 23,473 + 32,319)

                               = 2,57% x 0.627

                               = 1.61 %

Assets / Equity = ( 23,473 + 32,319) ÷ 23,473

                         = 2.38

therefore,

Return on Equity = 1.61 % x 2.38 = 3.83 %