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17 December, 19:34

Jack Corp. has a profit margin of 10.70 percent, total asset turnover of 1.45, and ROE of 18.61 percent. What is the firm's debt-equity ratio?

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  1. 17 December, 20:40
    0
    0.20

    Explanation:

    Given that,

    Profit margin = 10.70 percent

    Total asset turnover = 1.45

    ROE = 18.61 percent

    ROE = Profit margin * Total asset turnover * Equity multiplier

    0.1861 = 0.1070 * 1.45 * Equity multiplier

    0.1861 : (0.1070 * 1.45) = Equity multiplier

    0.1861 : 0.15515 = Equity multiplier

    1.20 = Equity multiplier

    Equity multiplier = 1 + (debt : equity)

    1.20 - 1 = debt-equity ratio

    0.20 = debt-equity ratio

    Therefore, the firm's debt-equity ratio is 0.20.
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