Explain DuPont Analysis and then work through the following: In the year 2007, the average firm in the S&P 500 Index had a total market value of fives times stockholders’ equity (book value). Assume a firm had total assets of $10 million, total debt of $6 million, and net income of $600,000.
- What is the percent return on equity?
- What is the percent return on total market value? Does this appear to be an adequate return on the actual market value of the firm?
- What are the implications?