Assume the following relationships for the Caulder Corp.: Sales/Total assets 2.3× Return on assets (ROA) 5.0%...

Assume the following relationships for the Caulder Corp.:

Sales/Total assets	2.3×
Return on assets (ROA)	5.0%
Return on equity (ROE)	9.0%

Calculate Caulder's profit margin and debt-to-capital ratio assuming the firm uses only debt and common equity, so total assets equal total invested capital. Do not round intermediate calculations. Round your answers to two decimal places.

Profit Margin: %?

Debt-to-capital ratio: %?

Solutions

Expert Solution

Given,

Sales/total assets ratio = 2.3

Return on assets = 5.0%

Return on equity = 9.0%

Solution :-

Profit margin = return on assets Sales/total assets

= 5.0% 2.3 = 2.17%

Debt-to-capital ratio = 1 - (return on assets/return on equity)

= 1 - (5.0%/9.0%)

= 1 - 0.56 = 0.44 or 44.00%

jeff jeffy answered 1 year ago

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