DuPont Equation: The Rangoon Timber Company has the following ratios:

Net sales/Total assets = 2.23; ROA = 9.69%; ROE = 16.4%

What are Rangoon's profit margin and debt ratios?

4.35 %; 0.41

Explanation:

Given

(sales : total assets) = 2.23

ROA = 9.69%

ROE = 16.4%

ROA = Net income : total assets

= [ (Net income : net sales) : (net sales : total assets) ]

(Net income : net sales) = [ROA : (net sales : total assets) ]

= 0.969 : 2.23

= 0.0435

Net profit margin = net income : net sales

= 0.0435

= 4.35 %

ROE = net income : total equity

ROE = (net income : net sales) * (net sales : total assets) * (total assets : total equity)

(Total assets : total equity) = ROE : [ (net income : net sales) * (net sales : total assets) ]

= 0.164 : (0.0435 * 2.23)

= 0.164 : 0.097

= 1.69

Equity multiplier = total assets : total equity

Equity multiplier = ROE : ROA

= 0.164 : 0.0969

= 1.69

Equity multiplier = 1 + debt-to-equity ratio

Debt-to-equity ratio = equity multiplier - 1

= 1.69 - 1

= 0.69

Total debt ratio:

= debt-to-equity ratio : (1+debt-to-equity ratio)

= 0.69 : (1 + 0.69)

= 0.41