Question

8) Dearborn Supplies has total sales of $190 million, assets of $101 million, a return on equity of 35 ?percent, and a net profit margin of 7.2 percent. What is the? firm's debt? ratio?

The? company's debt ratio is ____% (Round to one decimal? place.)

Answer 1

Net profit margin

= Net Profit / Total Sales

So, 0.072 = Net Profit / $190 million

So, Net Profit = 0.072 x $190 million

= $ 13.68 million

Return on equity

= Net Profit / Total stockholders equity

So, 0.35 = $ 13.68 million / Total stockholders equity

So, Total stockholders equity = $ 13.68 million / 0.35

= $39.08 million

Now, Assets = Liabilities + Equity

So, $101 million = Liabilities + $39.08 million

So, Liabilities = $101 million - $39.08 million

= $61.92 million

So, Debt ratio

= Total liabilities / Total Assets

= $61.92 million / $101 million

= 0.613 or 61.3%