Can anyone explain on the ROE equation why we don’t convert 4% Net profit margin to .04? ROE = Net profit margin X Total asset turnover X Financial Leverage If NPM = 4% TAT = 2.0 FL = 2.5 The answer is 20 for ROE. I understand the equation, but if we go 4% x 2x2.5= .20. It’s such a minor thing, but it’s really bugging me. Can anyone please explain?
I would totally contribute that to error in calculation. On their part! Dont’ worry about it, you got the right formula, know what it means, and if the numbers you’re getting are different, it’s more than likely their error. It happens. CFA and Schweser are human too. Well maybe not CFA… it’s like a nasty beast you love to hate and it’s kicked your ass in the past, but now you’re on steriods!! Lol. Good luck w/ the exam!!!
20% = 0.20 same thing, only % symbol is missing…
Thanks Choate05 and CP, Yeah I know that 20%=.20, but in the book they have a % multiplied by two whole numbers and get a whole number and not a decimal answer. I just wanted to make sure I’m not crazy. I hate it when CFA has wrong answers in it!