Homework answers / question archive / 1) Are P/E ratios higher for growth or value firms? Why? 2)The DuPont Equation A DuPont analysis is conducted using the DuPont equation, which helps to identify and analyze three important factors that drive a company's ROE

1) Are P/E ratios higher for growth or value firms? Why? 2)The DuPont Equation A DuPont analysis is conducted using the DuPont equation, which helps to identify and analyze three important factors that drive a company's ROE

Finance

Share With

1) Are P/E ratios higher for growth or value firms? Why?

2)The DuPont Equation A DuPont analysis is conducted using the DuPont equation, which helps to identify and analyze three important factors that drive a company's ROE. Complete the following equations, which are needed to conduct a DuPont analysis: ROE = Profit Margin % X Total Assets Turnover / Total Assets / Sales X Total Assets / Total Common Equity Most investors and analysts in the financial community pay particular attention to a company's ROE. The ROE can be calculated simply by dividing a firm's net income by the firm's shareholder's equity, and it can be subdivided into the key factors that drive the ROE. Investors and analysts focus on these drivers to develop a clearer picture of what is happening within a company. An analyst gathered the following data and calculated the various terms of the DuPont equation for three companies: ROE = Profit Margin X Total Assets Turnover x Equity Multiplier 57.3% 9.8 Company A Company B Company C 12.0% 15.5% 21.5% 2.14 2.61 58.2% 10.2 10.3 58.0% 3.60 Referring to these data, which of the following conclusions will be true about the companies' ROES? The main driver of Company C's superior ROE, as compared with that of Company A's and Company B's ROE, is its greater use of debt financing. The main driver of Company C's superior ROE, as compared with that of Company A's and Company B's ROE, is its efficient use of assets. The main driver of Company C's superior ROE, as compared with that of Company A's and Company B's ROE, is its operational efficiency.

3)Banana, Inc. has a book value per share of $8.70, earnings per share of $1.68, and a price-earnings ratio of 22.2. What is the market-to-book ratio? B) Melon, Inc. has inventory of $2,200, current liabilities of $5,600, cash of $1,900, and accounts receivable of $3,900. What is the cash ratio?