Assume the following relationships for the Caulder Corp.:
Sales/Total assets | 1.2× |
Return on assets (ROA) | 5.0% |
Return on equity (ROE) | 9.0% |
Calculate Caulder's profit margin and debt-to-capital ratio assuming the firm uses only debt and common equity, so total assets equal total invested capital. Do not round intermediate calculations. Round your answers to two decimal places.
Profit margin: %
Debt-to-capital ratio: %
Sales/Total Assets = 1.2
Net Income/Total Assets = 5%
Profit Margin = Net Income/Sales
= (Net Income/Total Assets)*(Total Assets/Sales)
- 5%*(1/1.2)
= 4.16666%
i.e. 4.17%
ROE = 9%
Net Income/Equity = 9%
Debt/Capital = Debt/Total Assets
Equity Ratio = Equity/Total assets
= (Equity/Net Income)*(Net Income/Total assets)
= (1/9%)*5%
= 0.5555
Hence, debt to capital ratio = 1-Equity ratio
= 0.4444445
i.e. 44.44%
Assume the following relationships for the Caulder Corp.: Sales/Total assets 1.2× Return on assets (ROA) 5.0%...
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