Question

A firm has an ROA of 15%, profit margin of 3% and ROE of 30%. What is its liability to total asset ratio?

1. 50%

2. 60%

3. 70%

4. 20%

A firm has an ROA of 15%, profit margin of 3% and ROE of 25%. What is its liability to total asset ratio?

1. 59.88%

2. 60.05%

3. 40.00%

4. 20.16%

A firm has an ROA of 15%, profit margin of 3% and ROE of 25%. What is its liability to total asset ratio?

1. 59.88%

2. 60.05%

3. 40.00%

4. 20.16%

Answer 1

(1)

ROA = Net Income/Total Assets = 15%

Profit margin = Net Income/Net Sales = 3%

ROE = Net income/Shareholder’s Equity= 30%

ROE = ROA * Total Asset/Equity

30% = 15% * Total Asset/Equity

Equity/Total Assets = 50%

Therefore Liability to Total Assets ratio = 100% – Equity/Total Assets ratio

= 100%-50%

=50%

Liability to Total Assets ratio is 50%.

(2)

ROA = Net Income/Total Assets = 15%

Profit margin = Net Income/Net Sales = 3%

ROE = Net income/Shareholder’s Equity= 25%

ROE = ROA * Total Asset/Equity

25% = 15% * Total Asset/Equity

Equity/Total Assets = 60%

Therefore Liability to Total Assets ratio = 100% – Equity/Total Assets ratio

= 100%-60%

=40%

Liability to Total Assets ratio is 40%.

(3)

ROA = Net Income/Total Assets = 15%

Profit margin = Net Income/Net Sales = 3%

ROE = Net income/Shareholder’s Equity= 25%

ROE = ROA * Total Asset/Equity

25% = 15% * Total Asset/Equity

Equity/Total Assets = 60%

Therefore Liability to Total Assets ratio = 100% – Equity/Total Assets ratio

= 100%-60%

=40%

Liability to Total Assets ratio is 40%.