Jiminy Cricket Removal has a profit margin of 11 percent, total asset turnover o

Question

Jiminy Cricket Removal has a profit margin of 11 percent, total asset turnover of 1.13, and ROE of 14.33 percent. What is this firm’s debt–equity ratio?

Explanation / Answer

PROFIT MARGIN 11.00% TOTAL ASSET TURNOVER 1.13 ROE 14.33% DEBT – EQUITY ??? ASSET TURNOVER RATIO = NET SALES/ AVERAGE TOTAL ASSET Or , 1.13* AVERAGE TOTAL ASSET= NET SALES PROFIT MARGIN RATIO = NET INCOME/ NET SALES Or , 11%= NET INCOME / NET SALES Or, 11%* NET SALES = NET INCOME [WHERE , NET SALES =1.13* AVERAGE TOTAL ASSET] Or , 11%*(1.13*AVERAGE TOTAL ASSET) = NET INCOME ROE= NET INCOME/ SHAREHOLDERS EQUITY Or, 14.33%= 11%*(1.13*AVERAGE TOTAL ASSET) / SHAREHOLDERS EQUITY Or, SHAREHOLDERS EQUITY = 11%*(1.13*AVERAGE TOTAL ASSET) / 14.33% Or, SHAREHOLDERS EQUITY = 0.8674110258 * AVERAGE TOTAL ASSETS [ WHERE , AVERAGE TOTAL ASSET = DEBT +SHAREHOLDERS EQUITY] AS PER BALANCE SHEET > DEBT + EQUITY = TOTAL ASSET Or, SHAREHOLDERS EQUITY = 0.8674110258 * [ DEBT + SHAREHOLDERS EQUITY ] Or, 1 * SHAREHOLDERS EQUITY = 0.8674110258 * DEBT + 0.8674110258 * SHAREHOLDRS EQ Or, (1- 0.8674110258 )* SHAREHOLDRS EQ= 0.8674110258 * DEBT Or, 0.1325889742 SHAREHOLDERS EQ = 0.8674110258 * DEBT Or, 0.1325889742 SHAREHOLDERS EQ / 0.8674110258 = DEBT Or , 0.1528559936 SHAREHOLDERS EQ = DEBT Or, 0.1528559936 = DEBT / SHAREHOLDERS EQ

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