Johnson Security Corp. has a ROE of 22 percent, profit margin of 10.0 percent, and total asset turnover of 1.1

Johnson Security Corp. has a ROE of 22 percent, profit margin of 10.0 percent, and total asset turnover of 1.1 . What is the firm's debt-equity ratio?

Solutions

Expert Solution

The debt-equity ratio is computed as shown below:

ROE = Profit margin x Total asset turnover x Equity multiplier

0.22 = 0.10 x 1.1 x Equity multiplier

Equity multiplier = 2

So, the debt-equity ratio will be as follows:

= Equity multiplier - 1

= 2 - 1

= 1

jeff jeffy answered 2 years ago

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