Question

Henderson's Hardware has an ROA of 8%, a 4.5% profit margin, and an ROE of 25%. What is its total assets turnover? Round your answer to two decimal places. What is its equity multiplier? Round your answer to two decimal places.

Answer 1

Answer:

Total assets turnover is 1.78

The equity multiplier is 3.12

Explanation:

return on assets 8% ; profit margin 4.5% ; return on equity 25%

ROA can be calculated: ROA = profit margin x total assets turnover

so total assets turnover = ROA / PM = 8% / 4.5% = 1.78

ROE can be calculated: ROE = profit margin x total assets turnover x equity multiplier

so equity multiplier = ROE / (PM x TATO) = 25% / (4.5% x 1.78) = 3.12