Answer:
Profit Margin = 10.8%
Explanation:
We know, Sustainable Growth Rate = Retention Ratio × Return on Equity
Again, we know,
Retention ratio = (1 - Dividend payout ratio)
Given,
Dividend payout ratio = 30.5%
Sustainable growth rate = 8.25%
Debt-to-Equity ratio = 0.44
Total assets to sales = (Total Assets ÷ Sales) = 1.31
Putting the value in the above formula,
Sustainable Growth Rate = (1 - Dividend payout ratio) × Return on Equity
or, 0.0825 = (1 - 0.305) × Return on Equity
or, 0.0825 = 0.695 × Return on Equity
or, 0.1187 = Return on Equity
Therefore, ROE = 11.87%
Again, ROE in DuPont Formula = Profit Margin × Total Asset Turnover × Equity Multiplier
We know, Equity Multiplier =
or, Equity Multiplier =
or, Equity Multiplier = 1 + Debt to asset ratio
Again, asset turnover = (1 ÷ Total assets to sales) = 1 ÷ 1.31
Putting the value in the ROE formula,
11.87% = Profit Margin × (1 ÷ 1.31) × (1 + 0.44)
or, 0.1187 = Profit Margin × 0.7634 × 1.44
or, 0.1187 = Profit Margin × 1.099296
or, Profit Margin = 0.108
Therefore, Profit Margin = 10.8%
