Keller Cosmetics maintains an operating profit margin of 8% and asset turnover ratio of 5. a....

Question

Question

Answer 1

Answer #1

Answer to Part a.

ROA = Operating Profit Margin * Asset Turnover Ratio
ROA = 8% * 5
ROA = 40%

Answer to Part b.

Net Income = EBIT – Interest and Taxes
Net Income = $27,500 - $9,500
Net Income = $18,000

Operating Profit Margin = EBIT / Sales * 100
8 = $27,500 / Sales * 100
Sales = $343,750

Profit Margin = Net Income / Sales * 100
Profit Margin = $18,000 / $343,750 * 100
Profit Margin = 5.24%

Equity Multiplier = 1 + Debt Equity Ratio
Equity Multiplier = 1 + 1 = 2

ROE = Profit Margin * Assets Turnover * Equity Multiplier
ROE = 5.24% * 5 * 2
ROE = 52.40%

Answer 2

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