Question

The cavo company has an roa of 9.8 percent, a profit margin of 12.25 percent, and an roe of 18.25 percent. What is the company's total asset turnover? (do not round intermediate calculations and round your answer to 2 decimal places,
e.G., 32.16.) total asset turnover times what is the equity multiplier? (do not round intermediate calculations and round your answer to 2 decimal places,
e.G., 32.16.) equity multiplier times

Answer 1

(a)As per Du-Pont equation:

Return on Assets (ROA) = Net profit margin * Total assets turnover

9.8% = 12.25% * total asset turnover

Total asset turnover = 0.098/0.1225  =0.8

Total asset turnover = 0.80

(b) As per Du-Pont equation:

ROE = Net profit margin * total asset turnover 8 * Equity Multiplier

18.25% = 12.25%*0.8* Equity Multiplier

Equity multiplier = 0.1825/(0.1225*0.8) = 1.86

Equity multiplier = 1.86 times