BuyFindarrow_forward

Fundamentals of Financial Manageme...

15th Edition
Eugene F. Brigham + 1 other
ISBN: 9781337395250

Solutions

Chapter
Section
BuyFindarrow_forward

Fundamentals of Financial Manageme...

15th Edition
Eugene F. Brigham + 1 other
ISBN: 9781337395250
Textbook Problem

RATIO CALCULATIONS Assume the following relationships for the Caulder Corp.:

Sales/Total assets 1.3×
Return on assets (ROA) 4.0%
Return on equity (ROE) 8.0%

Summary Introduction

To determine: Profit margin and debt to capital ratio.

Introduction:

DuPont Analysis:

Under DuPont analysis the return on equity can be calculated as a product of profit margin, total assets turnover and equity multiplier.

Debt to Capital Ratio:

It represents the proportion of debt capital in the firm’s total capital. Debt to capital ratio is determined by dividing total debt to total capital.

Explanation

Given,

Return on Assets is 4%.

Return on equity is 8%.

Total asset turnover ratio is 1.3× .

Profit margin

Formula to calculate profit margin,

Profitmargin=Return on assetsTotal assets turnoverratio

Substitute 4% for return on assets and 1.3× for total asset turnover ratio.

Profitmargin=4%1.3×=0.0307or3.07%

Here, profit margin is 3.07%.

Debt to capital ratio

To calculate the debt to capital ratio, firstly calculate equity to asset as follow:

Formula to calculate return on equity,

Return on equity=Returnonassets×TotalassetsCommonequity

Substitute 8% for return on equity, 4% for return on assets

Still sussing out bartleby?

Check out a sample textbook solution.

See a sample solution

The Solution to Your Study Problems

Bartleby provides explanations to thousands of textbook problems written by our experts, many with advanced degrees!

Get Started

Additional Business Solutions

Find more solutions based on key concepts

Show solutions add

How are inflation and unemployment related in the short run?

Principles of Microeconomics (MindTap Course List)

What are the two main causes of market failure? Give an example of each.

Brief Principles of Macroeconomics (MindTap Course List)

In the text, we discussed using the discounted dividend model to estimate a stocks intrinsic value. To keep thi...

Fundamentals of Financial Management, Concise Edition (with Thomson ONE - Business School Edition, 1 term (6 months) Printed Access Card) (MindTap Course List)

What is systems selection?

Pkg Acc Infor Systems MS VISIO CD

What steps are followed in posting cash receipts from the general journal to the accounts receivable ledger?

College Accounting, Chapters 1-27 (New in Accounting from Heintz and Parry)