Question

Assume you are given the following relationships for the Haslam Corporation: Sales/total assets 1.6 Return on assets (ROA) 3% Return on equity (ROE) 5% Calculate Haslam's profit margin and liabilities-to-assets ratio. Do not round intermediate calculations. Round your answers to two decimal places. Profit margin: % Liabilities-to-assets ratio: % Suppose half of its liabilities are in the form of debt. Calculate the debt-to-assets ratio.

Answer 1

For the given problem, Profit Margin = 1.88%, Liabilities-to-assets ratio = 40% and debt-to-assets ratio = 20%.

Explanation:

From the given data,

Sales/total assets=1.6 ,

Return on assets (ROA)=3% ,

Return on equity (ROE)=5%.

1) To calculate Profit Margin,

Profit Margin = $\frac{Return on assets (ROA)}{(Sales ortotal assets)}$.

Profit Margin = $\frac{3}{1.6}$.

Profit Margin = 1.88%.

2) To calculate Liabilities-to-assets ratio,

Liabilities-to-assets ratio = $1-\frac{ROA}{ROE}$.

Liabilities-to-assets ratio = $1-\frac{3}{5}$.

Liabilities-to-assets ratio = 1 - 0.6.

Liabilities-to-assets ratio = 40%.

3) The debt-to-assets ratio,

The half of the Liabilities-to-assets are in form of debt.

The debt-to-assets ratio = $\frac{Liabilities-to-assets ratio}{2}$

∴ The debt-to-assets ratio = 20%.