NISM Certifications · NISM-Series-XV: Research Analyst · Company Analysis - Financial Analysis
Aarav Textiles has net profit of Rs 90 crore, sales of Rs 1,200 crore, average total assets of Rs 600 crore and average shareholders' equity of Rs 300 crore. Using the DuPont decomposition, what is its return on equity?
ROE is 30%. Under DuPont, net margin of 7.5% is multiplied by asset turnover of 2 and an equity multiplier of 2, giving 30%. This equals net profit of Rs 90 crore divided by average equity of Rs 300 crore.
- A7.5%
- B15%
- C30%Correct
- D45%
Explanation
Net margin = 90/1200 = 7.5%. Asset turnover = 1200/600 = 2. Equity multiplier = 600/300 = 2. ROE = 7.5% x 2 x 2 = 30%. Check: 90/300 = 30%. The 15% option ignores leverage (margin x turnover only).
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