According to the Dupont formula, two factors affect the rate earned on total assets and they are profit margin and investment turnover. True or False?
According to the Dupont formula, two factors affect the rate earned on total assets and they are profit margin and investment turnover. True or False?
Related questions
Profit Margin, Investment Turnover, and return on investment
The condensed income statement for the Consumer Products Division of Fargo Industries Inc. is as follows (assuming no service department charges):
| Sales | $1,992,000 |
| Cost of goods sold | 896,400 |
| Gross profit | $1,095,600 |
| Administrative expenses | 597,600 |
| Income from operations | $498,000 |
The manager of the Consumer Products Division is considering ways to increase the return on investment.
a. Using the DuPont formula for return on investment, determine the profit margin, investment turnover, and return on investment of the Consumer Products Division, assuming that $3,320,000 of assets have been invested in the Consumer Products Division. Round the investment turnover to one decimal place.
| Profit margin | % |
| Investment turnover | |
| Rate of return on investment | % |
b. If expenses could be reduced by $99,600 without decreasing sales, what would be the impact on the profit margin, investment turnover, and return on investment for the Consumer Products Division? Round the investment turnover to one decimal place.
| Profit margin | % |
| Investment turnover | |
| Rate of return on investment | % |
Using the info below on the DuPont System. Comment on each yearand what's significant about it.
| The DuPont System | ||||||||||
| Operating | Asset | Financial | ||||||||
| Efficiency | Utilization | Leverage | ||||||||
| Profit margin | X | Total asset turnover | = | Return on investment | X | Financial leverage | = | Return on equity | ||
| Net income | X | Net sales | = | Net Income | X | Total assets | = | Net income | ||
| Net sales | Total assets | Total assets | Stockholders' equity | Stockholders' equity | ||||||
| Comments | ||||||||||
| 2015 | 0.02091 | 3.39910 | 0.07108 | 3.14967 | 0.22389 | |||||
| 2014 | 0.01867 | 3.33733 | 0.06232 | 2.68422 | 0.16728 | |||||
| 2013 | 0.01982 | 3.39696 | 0.06733 | 2.79544 | 0.18822 | |||||
