Supplies and installs refrigerators and air conditioners

Assignment Help Financial Management

Reference no: EM132066463

Trukul Ltd is a cooling and refrigeration company that supplies and installs refrigerators and air conditioners. Due to increased competition, the company is experiencing a reduction in its return on equity and the directors are worried that the company may fail to attract additional capital if the current trend continues. In order to boost sales, the marketing director has planned to engage into an aggressive sales promotion to increase the company’s profits. The following relates to the following year’s performance after the aggressive sales promotion.

Operating income (EBIT)

N$2 400 000

Sales revenue

N$16 000 000

Asset turn over

1.6 times

Interest

N$400 000

Total debt

N$5 000 000

The company’s income tax rate is 30% and the current year’s return on equity is 20%.

Required:

Calculate the following expected ratios:

a) Net profit margin

b) Return on assets

c) Debt to equity

d) Gearing (leverage) ratio

e) Times interest earned

f) Using the 5 factor Du Pont approach, calculate the expected return on equity.

Reference no: EM132066463

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