Jack Corp. has a profit margin of 6.4 percent, total asset turnover of 1.77, and ROE of 15.84 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.)

Question

Business

Champ

12 March, 16:50

Jack Corp. has a profit margin of 6.4 percent, total asset turnover of 1.77, and ROE of 15.84 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.)

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Answers (1)

Know the Answer?

Angeline · Answer 1

40%

Explanation:

Given that,

Profit margin = 6.4 percent

Total asset turnover = 1.77

ROE = 15.84 percent

ROE = Profit margin * Total asset turnover * Leverage ratio

0.1584 = 0.064 * 1.77 * Leverage ratio

Leverage ratio, EM = 0.1584 : (0.064 * 1.77)

= 1.398 or 1.40

Therefore,

firm's debt-equity ratio = EM - 1

= 1.40 - 1

= 0.4 or 40%