Question

Jiminy Cricket Removal has a profit margin of 10 percent, total asset turnover of 1.06, and ROE of 14.4 percent. What is this firm’s debt–equity ratio? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Debt–equity ratio times

Answer 1

Answer:

This firm’s debt–equity ratio is 0.54 or 54%

Explanation:

Debt–equity ratio = Total Debt / Total Equity = 0.37 / 0.69 = 0.54

Profit Margin = Net Profit / Net sales

10% = Net Profit / Net sales

Consider Sales as $1

Net Profit = 0.1 x 1  = 0.1

Total Asset Turnover = Net Sales / Total Assets

1.06 = 1/ total Asset

Total Asset = 1.06 x 1 = 1.06

Return on capital = Net Profit / Net Capital

14.40% = 0.1 / Total Capital

Total Capital = 0.1 / 0.144 = 0.69

Total Assets = Capital + Liabilities

1.06 = 0.69 + Total Liabilities

Total Liabilities = 1.06 - 0.69 = 0.37