- CFA Exams
- CFA Level I Exam
- Study Session 7. Financial Reporting and Analysis (2)
- Reading 24. Financial Analysis Techniques
- Subject 3. The DuPont System

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**CFA Practice Question**

An analyst has gathered the following information about a company: net profit margin of 15%, asset turnover ratio of 0.267, equity multiplier of 4.5, dividend payout ratio of 30%. What is the company's growth rate?

A. 18.6%

B. 14.8%

C. 12.6%

**Explanation:**g = (retention rate)(ROE) ROE = (net profit margin)(asset turnover)(equity multiplier) = (.15)(0.267)(4.5) = 0.180

g = (1 - .3)(0.180) = (.7)(0.18) = 0.126 or 12.6%

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**User Contributed Comments**
5

User |
Comment |
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jerylewis |
What is the equity multiplier? How does that relate to the financial leverage ratio? Thanks |

bahodir |
Equity Multiplier = Assets / Equity Financial Leverage Ratio = Liabilities / Equity Equity Multiplier = 1 + Financial Leverage Ratio |

mrdjb |
Bahodir, Financial Leverage = Avg Total Assets/Avg Total Eq. Liablities/Avg Total Eq is a total debt to equity ratio |

azramirza |
G=RR*ROE RR=1-Dividend payout....70*.15*0.267*4.5 |

cfastudypl |
you may wish to use a faster approach such as: 0.15*0.267*4.5*(1-0.3)=0.1262*100=12.6158 to I decimal place = 12.6 |