Question

The Carla Vista Timber Company has the following ratios: Net sales/Total assets = 3.00; ROA = 9.30%; ROE = 16.1%. What are Carla Vista’s profit margin and debt ratios? (Round answers to 2 decimal places, e.g. 12.55 or 12.55%.)

Answer 1

Answer: profit margin ratio = 0.03 and dept ratio = 1.73

Explanation:

Net ratio/total assets means assets turnover which is equal to 3

ROA = profit margin × assets turnover

ROA = 9.3% = 0.093

ROA = profit margin × 3

Profit margin = 0.093/3

Profit margin = 0.031

Also,

ROE = ROA × dept - equity margin ratio

Dept-equity margin ratio means dept ratio.

Dept ratio = ROE/ROA

Dept ratio = 16.1/9.3 = 1.731

Answer 2

Answer:

Profit margin = 3.10%   Debt Ratio = 0.42%

Explanation:

Gross profit margin represents the gross profits generated from every dollar in sales

Debt ratio measures the amount of debt a firm has used to finance it operations

First compute the equity multiplier

given by = ROE/ROA

              = 16.1%9.30%

               1.73

From the equity multiplier compute the debt ratio

DR = 1- 1/Equity multiplier

     =1-1/1.69

      =0.42

from the information given the ROE formula according to du point analysis can be used

ROE = Profit margin × asset turnover × equity multiplier

16.1 =Profit Margin ×3 × 1.73

Profit margin = 16.1/3*1.73

                      =3.10%