Ratio Calculations Assume the following relationships for the Caulder Corp.: Sales/Total assets 2.2x Return on assets (ROA) 5% Return on equity (ROE) 13% Calculate Caulder's profit margin assuming the firm uses only debt and common equity, so total assets equal total invested capital. Round your answer to two decimal places. % Calculate Caulder's debt-to-capital ratio assuming the firm uses only debt and common equity, so total assets equal total invested capital. Round your answer to two decimal places. %

Question

Business

Brielle Short

31 March, 22:04

Ratio Calculations Assume the following relationships for the Caulder Corp.: Sales/Total assets 2.2x Return on assets (ROA) 5% Return on equity (ROE) 13% Calculate Caulder's profit margin assuming the firm uses only debt and common equity, so total assets equal total invested capital. Round your answer to two decimal places. % Calculate Caulder's debt-to-capital ratio assuming the firm uses only debt and common equity, so total assets equal total invested capital. Round your answer to two decimal places. %

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Gideon Hendrix · Answer 1

2.27%; 61.54%

Explanation:

Given that,

Sales/Total assets = 2.2x

Return on assets (ROA) = 5%

Return on equity (ROE) = 13%

Therefore,

Return on assets = Profit margin * Assets turnover

0.05 = Profit margin * 2.2

Profit margin = 0.05 : 2.2

Profit margin = 0.0227 or 2.27%

Percent of total assets is from equity:

= Return on assets : Return on equity

= 0.05 : 0.13

= 0.3846 or 38.46%

Hence, the debt is as follows:

Debt = Assets - equity

= 1 - 0.3846

= 0.6154 or 61.54%