Question

In: Finance

Keller Cosmetics maintains an operating profit margin of 8% and asset turnover ratio of 2.If its...

Keller Cosmetics maintains an operating profit margin of 8% and asset turnover ratio of 2.If its debt-equity ratio is 1, its interest payments and taxes are each $8,700, and EBIT is $23,500, what is its ROE? (Do not round intermediate calculations. Enter your answer as a whole percent.)

Solutions

Expert Solution

20%

Working:

a. Sales = EBIT/Operating profit margin = $        23,500 / 8% = $ 2,93,750
EBIT is operating profit.
b. Assets = Sales /Assets Turnover
= $ 2,93,750 / 2
= $ 1,46,875
c. Debt-Equity ratio = 1
It means,
Liability = Equity
As per Balance Sheet equation,
Assets = Liability + Equity
or,
Assets = Equity + Equity (Laibility is equal to Equity as per debt-equity ratio)
or,
Assets = 2 Equity
or,
Equity = Assets /2
or,
Equity = $   1,46,875 /2
or,
Equity = $       73,438
d. EBIT $       23,500
Less:Interest and Taxes $         8,700
Net Income $       14,800
e. Return on equity = Net Income/Equity
= $       14,800 / $ 73,438
= 20%

jeff jeffy answered 2 years ago
Next > < Previous

Related Solutions

Keller Cosmetics maintains an operating profit margin of 8% and asset turnover ratio of 3. a....
Keller Cosmetics maintains an operating profit margin of 8% and asset turnover ratio of 3. a. What is its ROA? (Enter your answer as a whole percent.) ROA 24 % (was able to figure out a) b. If its debt-equity ratio is 1, its interest payments and taxes are each $8,300, and EBIT is $21,500, what is its ROE? (Do not round intermediate calculations. Enter your answer as a whole percent.) ____%
Keller Cosmetics maintains an operating profit margin of 8% and asset turnover ratio of 5 what...
Keller Cosmetics maintains an operating profit margin of 8% and asset turnover ratio of 5 what is it ROA?If its debt equity ratio is 1. Its interests payments and taxes each 9,500, and EBIT is 27,500. What is it ROE?
Keller Cosmetics maintains a profit margin of 5 percent and asset turnover ratio of 3 What...
Keller Cosmetics maintains a profit margin of 5 percent and asset turnover ratio of 3 What is its ROA? If its debt-equity ratio is 1.0, its interest payments and taxes are each $8,000, and EBIT is $20,000, what is its ROE?
A firm’s profit margin is 18%, and its asset turnover ratio is .5. It has no...
A firm’s profit margin is 18%, and its asset turnover ratio is .5. It has no debt, has net income of $50 per share, and pays dividends of $35 per share. What is the sustainable growth rate? (Do not round intermediate calculations. Enter your answer as a percent rounded to 1 decimal place.)
Compute Financial ratios Current Ratio, Quick Ratio, Reeivables turnover, Inventory turnover, Profit margin, Asset turnover, Return...
Compute Financial ratios Current Ratio, Quick Ratio, Reeivables turnover, Inventory turnover, Profit margin, Asset turnover, Return on assets, Return on equity, Earnings per Share, Price-earnings, Cash Dicidend payot, Debt Ratio, Debt-to-Equity, and Times Interest earned Orange Company Income Statement For the Years Ended December 31 2013 2012 Net sales (all on account) $            600,000 $                520,000 Expenses: Cost of Goods Sold $            415,000 $                354,000 Selling and administrative $            120,800 $                114,600 Interest Expense $                7,800 $                    6,000 Income Tax...
Return on Equity (ROE)= Sales Margin* Asset turnover* Gearing ratio ROE= Profit/equity Sales Margin= Profit/Sales Asset...
Return on Equity (ROE)= Sales Margin* Asset turnover* Gearing ratio ROE= Profit/equity Sales Margin= Profit/Sales Asset turnover= Sales/Assets Gearing Ratio= Assets/Equity This formula is important from strategy point of view as higher ROE is possible in a low profit margin business by increasing the asset turnover and by taking debt to increase the capital employed. This Question I need it to answer ---> "good very high level summary of the ratios in this DQ. Can you provide back to me...
net profit margin ratio, return on asset ratio, inventory turnover ratio which ratios you found most...
net profit margin ratio, return on asset ratio, inventory turnover ratio which ratios you found most helpful in explain your company’s financial performance and why
Figure It Out Corporation has a net profit margin of 8%, a total asset turnover of...
Figure It Out Corporation has a net profit margin of 8%, a total asset turnover of 2 times, total assets of $1 billion, and total equity of $500 million. What were the company’s sales and net profit?
Current Ratio: Asset Turnover Ratio: Inventory Turnover Ratio: Days In Sales Inventory Ratio: Gross Margin Ratio:...
Current Ratio: Asset Turnover Ratio: Inventory Turnover Ratio: Days In Sales Inventory Ratio: Gross Margin Ratio: Earning Per Share Ratio: Discuss what each ratio indicates about company performance. What does each ratio “tell” about a company? Interpret the ratios and use the interpretation as a basis to analyze the operational effectiveness .
1.OscarButtery, Inc. reported a profit margin of 14.2%, total asset turnover ratio of 1.5times, debt-to-equity ratio...
1.OscarButtery, Inc. reported a profit margin of 14.2%, total asset turnover ratio of 1.5times, debt-to-equity ratio of 0.625 times, net income of $775,000, and dividends paid to common stockholders of $321,625. The firm has no preferred stock outstanding. Whatis the firm's internal growth rate? A.more than 13.4%but less than 14.6% B.more than 12.2% but less than 13.4% C.more than 11.0% but less than 12.2% D.more than 9.8% but less than 11.0% E.less than 9.8% 2.In 2017, ForsythFlatbread, Inc. had net...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT