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Given: Information for the year one
Cash=$16,080
Accounts Receivable=$9,500
Prepaid=$3,150
Supplies =$675
Equipment =$25,200
Accumulated Depreciation (A.D)-Equipment=$8,150
Therefore, Accumulated Depreciation (A.D)= Equipment+$8,150
Accumulated Depreciation (A.D)=$25,200+$8,150
This makes A.D to become =$33,350
The total Assets for year one is the summation of all assets.
This then becomes: (Cash + Accounts Receivable + Prepaid + Supplies + Equipment +
Accumulated Depreciation).
Total Assets = ($16,080 + $9,500 + $3,150 + $675 + $25,200 + $33,350)
Total Assets = $87,955
The Return on Investments (ROI) or Return on Assets (ROA) is calculated by finding a percentage of Net Income (given) over Total Assets.
ROI = Net Income/Total Assets
ROI = $56,824/$87,955
ROI = 0.65%
Given: Information for year two
Cash=$20,000
Accounts Receivable=$15,000
Prepaid=$1,175
Supplies =$2,675
Equipment =$89,057
Accumulated Depreciation (A.D)-Equipment=$36,800
Therefore, Accumulated Depreciation (A.D)= Equipment+$36,800
Accumulated Depreciation (A.D)=$89,057+$36,800
This makes A.D to become =$125,857
The total Assets for year two is the summation of all assets.
This then becomes: (Cash + Accounts Receivable + Prepaid + Supplies + Equipment +
Accumulated Depreciation).
Total Assets = ($20,000 + $15,000 + $1,175 + $2,675 + $89,057 + $125,857)
Total Assets = $253,764
The Return on Investments (ROI) or Return on Assets (ROA) is calculated by finding a percentage of Net Income (given) over Total Assets.
ROI = Net Income/Total Assets
ROI = $56,824/$253,764
ROI = 0.22%
For us to find the Return on Equity (ROE) for the both years, the following formula is applied.
ROE = ROI X Total Assets/Common Equity
ROE for year one = 0.65% X $87,955/$82,600
ROE for year one then becomes 0.65 X 1.06
ROE = 0.69%
The ROE for year two then becomes 0.22% X $253,764/$82,600
ROE for year two equals 0.22 X 3.07
ROE = 0.68%
The extended DuPont equation for year one becomes:
ROE = (Net Profit Margin) (Total Asset Turnover) (Equity Multiplier)
=Net Income/Sales X Sales/Total Asset Turnover X Total Assets/Common
Equity
= ($56,824/$325,000) X ($325,000/$87,955) X ($87,955/$82,600)
= (0.17 X 3.7 X 1.06)
= 0.67%
For the second year, the ROE becomes:
ROE = ($56,824/$325,000) X ($325,000/253,764) X ($253,764/$82,600)
= (0.17 X 1.28 X 3.07)
= 0.67%
The DuPont Model for both years one and two is 0.67%
