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Question 3CRS-TP4: Calculate the 2002 ROE for the Philippe Corporation and then...

Calculate the 2002 ROE for the Philippe Corporation and then break down your answer into its component parts using the Du Pont identity.

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The return on equity is the ratio of net income to total equity. For Philippe, this is $146/$3,347 = 4.4%, which is not outstanding.
Given the Du Pont identity, ROE can be written as:
ROE = Profit margin × Total asset turnover × Equity multiplier
= $146/$4,053 × $4,053/$7,380 × $7,380/$3,347
=      3.6%           ×           .549         ×       2.20
=      4.4%
Notice that return on assets, ROA, is 3.6% × .549 × 1.98%.

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