In question 29, Financial Leverage they have used in Equity/Assets. I think according to Dupont, Leverage= Assets/Equity Also Asset Turnover is taken as Assets/ Net Profit. I dont understand this. Pls explain.
asset turnover is sales/net assets.
It is Return on Equity / Return on Assets Return on Equity = NI / CE Return on Assets = NI / TA Net Profit Margin = NI / NS Now you need Financial Leverage = TA / CE = (NI/CE) / (NI/TA) = Return on Equity / Return on Assets You need Asset Turnover Ratio Asset Turnover Ratio = NS / TA = (NI/TA) / (NI/NS) = Return on Assets / Net Profit Margin. Hope this explains. CP
i think of it as Turnover ratio = Sales/ XXXX except for inventory and AP where you take COGS Margin ratios = XXXX/Sales Return ratios = Net Income /XXXXX