Might get lost in the other “Desperate cramming post” so thought to post as a new topic. Here goes for Long Dupont ROE = NI / CE = [(EBIT - Int) *(1-T)] / CE = [(EBIT - Int)] / CE * (1-T) = [(EBIT/TA - Int /TA)] * TA/CE * (1-T) = [(EBIT / NS * NS / TA - Int / TA )] * TA / CE * (1-T) = ( Op. Profit Margin * TAT - Int Expense Ratio ) * Financial Lev * Tax Retention
I would make sure you all know the formula and it’s individual parts, broken down like above, and how changes in accounts, operations, etc. will affect them…the actual formulaic approach isn’t hard, but the fundamental info derived from it is and will be on the test.
quesiton, when u calculate Equity, does it include Common Equity + RE? or just CE? I remember on some occassions u include RE as part of Equity. So all in all, where does RE belong to?
equity = Assets - Liabilities. So would include the Retained earnings component.
Retained earnings are just earnings the company keeps to use for additional capital, growth, etc…but they are essentially the shareholders’. THis is why it is added to liabilites to balance assets.