Friday, July 6, 2012

Equity Multiplier Total Assets Turnover

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?

Accounting Answer:

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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