DuPont Analysis If Epic, Inc. has an ROE = 25%, equity multiplier = 4, a profit margin of 12%, what is the total asset turnover ratio?
A) .0833
B) .192
C) .5208
D) .75

Question

Quizplus · Accepted Answer

The DuPont analysis formula is:

ROE = Net Income/Total Equity 
ROE = Net Income/Sales x Sales/Total Assets x Total Assets/Total Equity 
ROE = Profit Margin x Total Asset Turnover x Equity Multiplier

Given: 
ROE = 25% 
Equity multiplier = 4 
Profit margin = 12%

We can solve for the total asset turnover ratio:

ROE = Profit Margin x Total Asset Turnover x Equity Multiplier 
25% = 12% x Total Asset Turnover x 4 
Total Asset Turnover = 25%/12%/4 
Total Asset Turnover = 0.5208

Therefore, the answer is C.