Kindle Fire Prevention Corp. has a profit margin of 6.2 percent, total asset turnover of 2.1, and ROE of 18.34 percent. What is this firm's debt-equity ratio? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e. g., 32.16))

Question

Mathematics

Neveah Gutierrez

24 June, 08:18

Kindle Fire Prevention Corp. has a profit margin of 6.2 percent, total asset turnover of 2.1, and ROE of 18.34 percent. What is this firm's debt-equity ratio? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e. g., 32.16))

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Charlee · Answer 1

Answer: Debt - Equity ratio is 0.41

Step-by-step explanation: Debt - Equity ratio is calculated by subtracting one from the equity multiplier.

To solve this problem the du pont analysis is used which is Return on equity = Profit margin * Total Asset turnover * equity multiplier

0.1834 = 0.062 * 2.10 * Equity multiplier (EM)

0.1834 = 0.1302

EM = 1.41

Therefore debt-equity ratio = EM - 1

= 1.41 - 1 = 0.41