CFA Practice Question

There are 534 practice questions for this study session.

CFA Practice Question

A firm's ROE equals 47%. Its financial leverage (assets/equity) equals 1.8 and its asset turnover is 0.8. If the firm's total net sales equal $1.35 million, its net income equals ______.
A. $352,500
B. $282,000
C. $440,625
Explanation: ROE = net income/equity = (net income/sales)*(sales/assets)*(assets/equity)
= (net income/sales)*(asset turnover)*(financial leverage)
Therefore, net income = 0.47*1.35/(0.8*1.8) million = 440,625.

User Contributed Comments 1

User Comment
AdeyemiK one could also do ROE*1/fin leverage to get Asset turnover
ROA/asset turnover = profit margin
profit margin*sales = NI
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