# Gapenski Chapter 17 Essay

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Assignment 2 Question # 17.4 (Page 639 - 640) Summery of equations used for part (a): Problem Summery: BestCare's: US \$ (in thousands) ROE = Total marign x Total asset turnover x Equity multiplier Net income 1,218 (Obtained from Appendix A "Financial Ratios) Total revenue 28,613 Total margin = Net income/Total revenue * 100 Total assets 9,869 Total asset turnover = Total revenue/Total assets Total equity 2,118 Equity multiplier = Total assets/Total equity Part (a) Perform a Du Pont analysis on BestCare . Assume that the industry averages are as follows: Total margin 3.80% Total asset turnover 2.1 Equity multiplier 3.2 Return on equity (ROE) 25.50% Du Pont analysis for BestCare: Total margin = Net income/Total revenue Total margin = 1,218 0.042568063 or 4.26% 28,613 Total asset turnover = Total revenue/Total assets Total asset turnover = 28,613 2.899280576 or 2.90 9,869 Equity multiplier = Total assets/Total equity Equity multiplier = 9,869 4.659584514 or 4.66 2,118 ROE = Total marign x Total asset turnover x Equity multiplier ROE = 4.26 x 2.90 x 4.66 0.5751 or 57.50% BestCare has a much higher ROE as compared to the industry. Bestcare has been able to do that by higher margin though better cost control, higher asset turnover implying more efficient use of assets and through the use of more leverage as compared to industry average which