ModeldrillDuPont breakdown of return on equity
A financial modeling exercise from Modeldrill. Solve it with a live spreadsheet grid in your browser, with Fill right and Fill down, and it is checked the moment you submit.
The task
Three companies report the figures in rows 5 to 8. Fill the net margin (row 9: net income over revenue), asset turnover (row 10: revenue over total assets), the equity multiplier (row 11: total assets over equity) and return on equity as the product of the three (row 12).
What this exercise teaches
The grocer, the software firm and the utility earn their return on equity by different routes: thin margins with fast turnover, high margins with little leverage, and modest margins with heavy leverage. The breakdown shows which lever a forecast is really relying on.
A hint if you get stuck
Three ratios, each one a division of two rows, then multiply them. Revenue and total assets cancel out, leaving net income over equity.
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