Question

Norton Company has a debt-to-equity ratio of 1.02, ROA of 11.98 percent, and total equity of $1,815,000. What are the company’s equity multiplier, debt ratio, and ROE? (Roundanswers to 2 decimal places, e.g. 12.55 or 12.55%.)

The company’s equity multiplier is , its debt ratio is , and its ROE is %.

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Answer 1

Debt-to equity ratio = 1.02

- Equity Multiplier = 1+ Debt-to-Equity

Equity Multiplier = 1+1.02

Equity Multiplier = 2.02

- Total Equity = $1815,000

Equity Multiplier = Total Assets/Total Equity

2.02 = Total Assets/$1815,000

Total Assets = $3,666,300

Total Debt = Total Assets - Total Equity

Total Debt = $3666,300 - $1815,000

Total Debt = $1851,300

- Debt Ratio = Total Debt/Total Assets

Total Debt = $1851,300/$3666,300

Total Debt = 50.49%

- Return on Assets(ROA) = Net income/Total Assets

0.1198 = Net income/$3666,300

Net Income = $439,222.74

Return on Equity (ROE) = Net income/Total Equity

ROE = $439,222.74/$1815,000

ROE = 24.20%