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8 April, 10:31

A corporation has a return on equity of 18%. It has a total asset turnover ratio of 2. If it has a profit margin of 6%, what is its equity multiplier?

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  1. 8 April, 11:21
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    1.5

    Explanation:

    In this question, we applied the DuPont Analysis which are shown below:

    Return on equity = Profit margin * Total assets turnover * Equity multiplier

    where,

    Return on equity = 18%

    Profit margin = 6%

    And, the total asset turnover is 2

    Now, the equity multiplier is

    18% = 6% * 2 * Equity multiplier

    18% = 12% * Equity multiplier

    So, the equity multiplier is

    = 18% : 12%

    = 1.5
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