I was trying to rule these statements out 1 by 1… Statement A - I was able to rule out because you use DDM to get “g” and “r”. First you calculate “g” as RR*ROE=15.82% then you have to calculate “r” (this is dirty IMHO)… and you get r = .171 ROE = ROA * Leverage so Leverage = ROE/ROA. SMGI leverage is 1.73 industry avg is 1.454 so statement 1 is incorrect. Statement B - I couldn’t figure out. Statement C - I calculated and got the PVGO as 19.17 and then as a percentage of the total estimated future price 19.17 / 35.78 = .535 Through process of elimination I was able to answer correctly, but I’m confused b/c I’ve never seen Asset turnover = ROA / NPM. Can anyone explain?
(NPM*Asset Turnover)/NPM = Asset Turnover
No.
Just write out what each three is and its a simple manipulation. Sales over assets equals ( NI over assets ) divided by (NI over Sales) Formula gets solved to equal asset turnover on both sides
seriously??? u must be joking
PC79 you just stated the formula, I knew that formula when I looked at the answer key. I was asking for an explanation why ROA or (NPM*Asset Turnover) / NPM = Asset Turnover. I can make sense with [ROE / NPM] / Leverage = Asset Turnover ROE = NPM * ASSET TURNOVER * LEVERAGE so just divide ROE by Leverage, then by NPM u get Asset Turnover. Perfect.
Oo, you need ROE… I should have read the questuon, sorry about that Nice call though on this question,never actually solved part b