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?

Expert Solution

a.

ROA = Asset turn over x Operating profit margin

= 5 x 0.08 = 0.4 or 40 %

b.

Debt/Equity = 1

Debt = Equity

Total assets = Debt + Equity = 2 x Equity

ROE = Assets/Equity x ROA x Debt Burden = Assets/Equity x ROA x Net Income/Income after tax

= 2 x 0.4 x ($ 27,500 - $ 9,500 - $ 9,500)/ ($ 27,500 - $ 9,500)

= 0.8 x $ 8,500/$ 18,000

= 0.8 x 0.472222222222222 = 0.377777777777778 or 37.78 %

jeff jeffy answered 10 months ago

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