Question

Assume the following relationships for the Caulder Corp.: Sales/Total assets 2.1× Return on assets (ROA) 8.0%...

Assume the following relationships for the Caulder Corp.:

Sales/Total assets 2.1×
Return on assets (ROA) 8.0%
Return on equity (ROE) 14.0%

Calculate Caulder's profit margin and debt-to-capital ratio assuming the firm uses only debt and common equity, so total assets equal total invested capital. Do not round intermediate calculations. Round your answers to two decimal places.

Profit margin:   %

Debt-to-capital ratio:   %

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Homework Answers

Answer #1

Solution:

Sales/Total assets = 2.1×

Return on assets (ROA)= 8.0%

Return on equity (ROE) = 14.0%

Net profit margin = Net Income / Sales

Net profit margin = Net Income / Sales = Net Income / Asset * Asset / Sales

Net profit margin = Net Income / Sales = ROA * 1 / (sales / Assets) = 8% * 1/2.1 = 3.81%

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