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3 years ago

Zombie Corp. has a profit margin of 5.1 percent, a total asset turnover of 1.95, and ROE of 16.15 percent.

Business

1 answer:

elena-s [515]3 years ago

3 0

Answer:

This firm's equity multiplier is 1.6239

This firm's debt-equity ratio is 0.6239

Explanation:

According to the given data we have the following:

Profit Margin (PM) = 5.10%

That is, Net Profit/Sales = 5.10% = 0.051

Total Assets Turnover (TAT) = 1.95

That is, Sales/Total Assets = 1.95

Return on Equity (ROE) = 16.15%

That is, Net Profit/Total Equity = 16.15% = 0.1615

In order to calculate this firm's equity multiplier we would have to use the following formula:

Equity Multiplier (EM) = Total Assets / Total Equity

=(total assets/sales)*(sales/total equity)

=(total assets/sales)*(sales/net profit)*(net profit/total equity)

=(1/T AT)*(1/PM)*(ROE)

=(1/1.95)*(1/0.051)*(0.1615)

=1.6239

This firm's equity multiplier is 1.6239

In order to calculate this this firm's debt-equity ratio we would have to use the following formula:

Debt Equity Ratio = Debt/Equity

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

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

= equity multiplier-1

=1.6239-1

=0.6239

This firm's debt-equity ratio is 0.6239

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