RATIO CALCULATIONS Assume the following relationships for the Caulder Corp. Sale

Question

RATIO CALCULATIONS Assume the following relationships for the Caulder Corp. Sales/Total assets Return on assets (ROA) Return on equity (ROE) a. Calculate Caulder's profit margin assuming the firm uses only debt and common equity, so total assets equal total invested capital. Round your answer to two decimal 1.3x 4% 9% places. b. Calculate Caulder's debt-to-capital ratio assuming the firm uses only debt and common equity, so total assets equal total invested capital. Round your answer to two decimal places. $5

Explanation / Answer

return on assets=profit margin*(sales/total assets)

4%=profit margin*1.3

profit margin=4%/1.3=3.08%

Return on equity (ROE)=return on assets*(assets/equity)

9%=4%*(assets/equity)

assets/equity=9%/4%=2.25

debt/equity=(assets/equity)-1

=2.25-1

=1.25

debt=1.25*equity

debt to total capital=1.25/(1+1.25)=55.56%

the above is answer..

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