A firm has a (net income/taxable income) ratio of 0.8, aleverage ratio of 1.5, a...

A firm has a (net income/taxable income) ratio of 0.8, a leverage ratio of 1.5, a (taxable income/EBIT) of 0.4, an asset turnover ratio of 2, and a return on sales ratio of 10%. What is the firm's ROE?

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Expert Solution

The ROE is computed as follows:

= Leverage ratio x return on sales ratio x Asset turnover ratio

= 1.5 x 0.10 x 2

= 30%

jeff jeffy answered 2 years ago

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