If a retailer has a net profit margin of 3 percent, asset turnover of 4.0x, and...

Question

Question

If a retailer has a net profit margin of 3 percent, asset turnover of 4.0x, and financial leverage of 2.0x, then its return on net worth is?

The answer is 24% I just do not know how to get that answer. Please explain how to get 24%

Answer 1

Answer #1

Net Profit% =N.P/ Sales ; N.P = 3%sales

Asset/Sales = 4x; Asset = 4x sales

Debt/asset=s 2.0x; Asset = 4x sales; Debt = 4x * 2.0x sales = 8x sales

ROE = Net Profit/Equity = 3%sales/1/Debt =3%sales * 8x sales = 24%

Answer 2

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