Question

Total Greens, Inc. has a profit margin of 8.0 percent, total asset turnover of 1.3, and ROE of 24.3 percent. The firm's debt−equity ratio is ______ times. (Round your answer to 2 decimal places. (e.g., 32.16))

Your Answer:

Answer 1

Answer:

Return on Equity = Profit margin * Total Asset Turnover * Equity Multiplier
0.243 = 0.08 * 1.3 * Equity Multiplier
0.243 = 0.104 * Equity Multiplier
Equity Multiplier = 0.243 / 0.104
Equity Multiplier = 2.34

Debt to Equity Ratio = Equity Multiplier – 1
Debt to Equity Ratio = 2.34 – 1
Debt to Equity Ratio = 1.34