Question

Assume you are given the following relationships for the Haslam Corporation:

Sales/total assets	2.4
Return on assets (ROA)	3%
Return on equity (ROE)	8%

Calculate Haslam's profit margin. Do not round intermediate calculations. Round your answer to two decimal places.
%

Calculate Haslam's liabilities-to-assets ratio. Do not round intermediate calculations. Round your answer to two decimal places.
%

Suppose half of Haslam's liabilities are in the form of debt. Calculate the debt-to-assets ratio. Do not round intermediate calculations. Round your answer to two decimal places.
%

Answer 1

Hi

Here Sales/Total Assets= = asset turnover= 2.4

Return on Asset= 3%

Return on equity = 8%

We know that retun on asset= profit margin*asset turnover

profit margin = retun on asset/asset tunrover = 3%/2.4 = 1.25%

now we have to find out liabilities/asset ratio

liabilility= asset-equity

liability/asset= asset/asset-equity/asset

= 1-equity/asset = 1- equity/net income/asset/net income

= 1-(net income*equity)/(asset*net income)

=1 - ROA/ROE= 1- 3/8 = 1-0.375= 0.625= 62.5%

hence liablity/asset ratio = 62.5%

If half of liabilities = debt

then debt to asset ratio = 50%*62.5= 31.25%

Thanks