Problem 2 - Use of Ratios to Make Other Calculations You have a company that currently has a market capitalization of $4.6 billion It has a market to book ratio of 3 and a book debt to equity ratio of 6. If cash is $1.1 billion, what is the company's enterprise value?

Solution:

Discussion of the Dupont Formula

The Dupont Formula is a way of disaggregating the components of ROE

ROE = Net Margin X Asset Turnover X Equity Multiplier

We know by definition, ROE = Net Income / Book Equity

Dupont shows us:

ROE =	Net Income /		Times		Sales/		Times		Assets/
	Sales				Assets				Equity

We also know by definition, ROA = Net Income / Assets

Dupont shows us:

ROA =	Net Income/		Times		Sales/
	Sales				Assets