Question

Return on equity = 10.69%, return on assets = 7.41%. 1) What is the debt-equity ratio? 2) What is the total debt ratio? Please show all steps.

Answer 1

Return on Equity = Net Income/ Total Equity
Return on assets = Net income/ Total Asset
Net Income/Total Equity = 10.69%
Net income/ Total Asset = 7.41%
Total Equity = Net Income/10.69%
Total Asset = Net income/7.41%
Total Equity/Total Assets = 7.41%/10.69% = 0.693171188
Total Debt/Total Assets = 1 - Total Equity/Total Assets = 1 - 0.693171188 =0.306828812

1) Debt Equity Ratio = (Total Debt/Total Assets )/( Total Equity /Total Assets) = 0.4426 or 44.26%

2) Total Debt ratio = Total Debt/Total Assets = 1 - Total Equity/Total Assets = 1 - 0.693171188 =0.306828812 or 30.68%

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