Question

Gardial & Son has an ROA of 11%, a 2% profit margin, and a return on equity equal to 17%. What is the company's total assets turnover? What is the firm's equity multiplier? Do not round intermediate calculations. Round your answers to two decimal places.

Answer 1

Answer:

Total assets turnover = 5.5

Equity multiplier = 1.55

Explanation:

The return on assets (ROA = 11%) is defined as the profit margin (2%) multiplied by the total assets turnover (TAT):

$0.11=0.02*TAT\\TAT = 5.5$

The return on equity (ROE = 17%) is defined as the product of the return on assets (ROA = 11%) by the equity multiplier (EM):

$0.17=0.11*EM\\EM=1.55$

The company's total assets turnover is 5.5

The firm's equity multiplier is 1.55