Question

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

Sales/total assets	1.6
Return on assets (ROA)	3%
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:   %

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.

  %

Answer 1

Profit margin = net profit / sales

Also profit margin = ROA / (Sales / Total assets)

= 3% / 1.6

= 1.88%

Liabilities to assets ratio:

Here first we have to calculate equity multiplier

Equity multiplier = ( ROE / ROA)

= 5% / 3% = 1.67

Equity multiplier 1.67 means 0.67 is liabilities and 1.67 is total assets

Liabilities to assets ratio = liabilities / total assets

= 0.67 / 1.67

= 0.40

debt to assets ratio:

Here it is given debt is half of liabilities

From the above we have calculated liabilities = 0.67

So debt = 0.67 / 2 = 0.33

Debt to assets ratio = debt / total assets

= 0.33 / 1.67

= 0.20

(In case of any further explanation please comment)