Question

Problem TWO:

Total Asset Turnover (TAT) 3.0xx

Return on Assets (ROA) 9.0000%

Return on Equity (ROE) 12.0000%

Find:

Profit Margin:

Debt Ratio:

Answer 1

Profit margin = Return On Assets / Total asset turnover

= 9% / 3.00

= 3%

ROE = Profit margin * Asset turnover * Financial multiplier

12% = 3% * 3.00 * Financial Multiplier

Financial Multiplier = 12 / 9

= 1.333

Financial Multiplier = Total assets / Equity

If the financial multiplier = 1.333 this means that total assets = 1.333 and total equity = 1

We know that total assets = Equity + Debt

1.33 = 1 + Debt

Debt = 0.33

Debt ratio = Total debt / Assets

= 0.333 / 1.333

= 25%