Question
4. The DuPont System allows us to relate the return on total assets and the return on common equity to various measures of firm characteristics.
4. The DuPont System allows us to relate the return on total assets and the return on common equity to various measures of firm characteristics. Consider a firm with a ROA of 0.04. a. If you were analyzing a firm that had sales of $12500 and total assets of $10000, how much in earnings were available for common shareholders?
b.If the firm had common stockholders' equity of $3300, what would be the firm's ROE?
c. If we compare this firm to another similar firm in the industry we find that the comparison firm has an ROA and ROE of 0.05 and 0.191663, respectively. Given this information, calculate the comparison firm's ratio of total assets to common stock equity. How does this ratio differ from our firm?
d.Interpret the performance differences between these firms.
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