NISM Certifications · NISM-Series-XV: Research Analyst · Company Analysis - Financial Analysis
Vindhya Foods reports net profit of Rs 90 crore, total assets of Rs 600 crore and shareholders' equity of Rs 360 crore. Using the DuPont framework, if the net profit margin is 6%, what is the return on equity?
Return on equity is 25%. Net profit of Rs 90 crore divided by equity of Rs 360 crore gives 25%, which matches the DuPont product of 6% margin, 2.5 asset turnover and 1.667 equity multiplier. The 15% figure is return on assets.
- A15%
- B25%Correct
- C6%
- D10%
Explanation
ROE = net profit/equity = 90/360 = 25%. Check with DuPont: sales = 90/0.06 = Rs 1,500 crore; asset turnover = 1500/600 = 2.5; equity multiplier = 600/360 = 1.667; 6% x 2.5 x 1.667 = 25%. 15% is ROA (90/600), a wrong base.
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