# Return on equity for the company

Dividend payout ratio 30.5% Net profit margin 6% total asset turnover 1.8 equity 1.8 Does anyone know a simple way to solve this Thank you in advance

What do you mean ‘equity 1.8’, is that a dollar figure?

Whats the question? solve what?

I think the answer is: = Net profit margin*total asset turnover= NI/Sales*Sales/Asset=0.06*1.8=0.108… Please someone correct if I’m wrong?

I think you are correct It could be 10.8% or 12.6% You made it look very simple, but it’s a confusing question

To answer the others questions, the question is . Return on equity for company “a” is-

I don’t think Abokhaled’s answer is right because it doesn’t include the impact of leverage…having said that, I don’t know how to get the right answer either. ROE is net income / average total equity you can also use dupont, which we seem to have 2 of the 3 parts of: (net income/revenue) * (revenue/average assets) * (average assets/average equity) lastly i guess you could derive from the growth rate used in gordon growth model Growth rate = ROE * Retention Rate therefore ROE = growth rate / retention rate But – I still can’t see how to use any of these to get the answer. Anyone?

I agree with you, need definitely need the multiplier to get ROE, and I had a similar thought about using the Gordon Growth Model too, but do not see enough information here to solve the problem with those two methods.

Alright, If Net profit margin is 6% this means NI must be \$6 and sales is \$100. Then ROE=NI/OE (Owners Equity)=\$6/1.8=3.33%. Again I’m assuming that since NPM=6%, then sales would be 100 and NI is 6. Does that make sense!

I think the problem is missing at least one input parameter.

we going hard hard hard hard hard