Friday, July 6, 2012
A manufacturing company has a Return on assets (ROA) of 10%, a 2% Profit Margin (PM), and a return on equity (ROE) that is equal to 15%.
Answer the following accounting questions with the above information:
What is the company’s total assets turnover?
What is the firms Equity Multiplier?
Return on Equity (ROE) = 15%
Return on Assets = 10%
Profit Margin = 2%
Equity Multiplier = Need to Solve for
Total Assets Turnover = Need to Solve for
Use the following accounting equations and financial ratios:
Return on Equity (ROE) = Return on Assets (ROA) X Equity Multiplier
15% = 10% * E.M
Equity Multiplier = 15/10 = 1.5
Return on Assets (ROA) = Proft Margin X Total Assets Turnover
10% = 2% X Total Assets Turnover
Total Assets Turnover = 10/2 = 5
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