NISM Certifications · NISM-Series-XV: Research Analyst · Company Analysis - Financial Analysis
A firm has net profit of Rs 90 crore, sales of Rs 1,200 crore, average total assets of Rs 900 crore and average shareholders' equity of Rs 450 crore. Using the DuPont framework, what is its return on equity?
ROE is 20%. DuPont multiplies net margin of 7.5%, asset turnover of 1.333 times and equity multiplier of 2, giving 20%. This matches net profit of Rs 90 crore divided by average equity of Rs 450 crore.
- A20%Correct
- B10%
- C7.5%
- D15%
Explanation
Net margin = 90/1200 = 7.5%. Asset turnover = 1200/900 = 1.333. Equity multiplier = 900/450 = 2. ROE = 7.5% x 1.333 x 2 = 20%. Check: 90/450 = 20%. The 10% option omits the equity multiplier, and 7.5% is only the net margin.
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