Question

Assume you are given the following relationships for the Haslam Corporation: Sales/total assets 1.2 Return on assets (ROA) 4% Return on equity (ROE) 5% Calculate Haslam's profit margin and liabilities-to-assets ratio. Do not round intermediate calculations. Round your answers to two decimal places. Profit margin: % Liabilities-to-assets ratio: 20 %

Suppose half of its 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.

Profit Margin: %

Liabilities to assets ratio: 20%

Debt to assets ratio: %

Answer 1

ROA = net income / total assets

ROE = net income / equity

ROA * (1 / ROE) = (net income / total assets) * (1 / (net income / equity))

4% * (1 / 5%) =  (net income / total assets) * (equity / net income)

0.80 = equity / total assets

(Liabilities / total assets) = 1 - (equity / total assets)

(Liabilities / total assets) = 1 - 0.80 = 0.20, or 20%

(Debt / total assets) = Liabilities-to-total assets / 2 = 20% / 2 = 10%

Profit margin = net income / sales

Profit margin = (net income / total assets) * (total assets / sales)

Profit margin = 4%* (1 / 1.2)

Profit margin = 3.33%