DuPont Analysis You are considering investing in Lenny's Lube,Inc.You have been able to locate the following information on the firm: total assets = $20 million,accounts receivable = $6 million,ACP = 20 days,net income = $5 million,and debt-to-equity ratio = 2.5 times.What is the ROE for the firm?
A)2.5000 percent
B)13.9882 percent
C)35.0000 percent
D)87.50 percent

Question

Quizplus · Accepted Answer

The DuPont Analysis formula for ROE is: ROE = (Net Income / Equity). Given the debt-to-equity ratio of 2.5, the equity is $20 million / (1 + 2.5) = $5.714 million. ROE = $5 million / $5.714 million = 87.50%.

DuPont Analysis You Are Considering Investing in Lenny's Lube,Inc