The answer is "0.1782 or 17.82%". equity multiplier =1.65 total asset turnover =1.8 profit margin = 6% = 6/100 = 0.06 ROE = profit margin x total asset turnover x equity multiplier ROE = 0.06 x 1.8 x 1.65 = 0.1782 = 0.1782 or 17.82%
These figures make up what is known as the DuPont return on equity model. it is important to remember that the equity multiplier = Assets / shareholder equity, total asset turnover = revenue / assets, and net profit margin = net income / revenue. The calculation is (0.06)*(1.8)*(1.65) = 17.82%
