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Simplified 2017 Income Statement:
Simplified 2017 Balance Sheet
Management has determined that last year’s ROE (i.e., in 2017) was unacceptable as it
disappointed shareholders. Now, management wants to increase ROE to 20%. Use the DuPont
Decomposition to determine the net profit margin that will be required to achieve this ROE
target. Assume all other ratios in the Dupont Decomposition are held constant. Please show
work.
Solution
Answer:
ROE = Net Income / Shareholders Equity
20% = X / (2500 + 1020 )
X = 3520 x 20% = $704
Net Profit Margin = $704 / $7500 = 9.39%

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  • 1. Simplified 2017 Income Statement: Simplified 2017 Balance Sheet Management has determined that last year’s ROE (i.e., in 2017) was unacceptable as it disappointed shareholders. Now, management wants to increase ROE to 20%. Use the DuPont Decomposition to determine the net profit margin that will be required to achieve this ROE target. Assume all other ratios in the Dupont Decomposition are held constant. Please show work. Solution Answer: ROE = Net Income / Shareholders Equity 20% = X / (2500 + 1020 ) X = 3520 x 20% = $704 Net Profit Margin = $704 / $7500 = 9.39%