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Assume you are given the following relationships for the Brauer Corp:
Sales/Total assets 1.5X
Return on Assets (ROA) 3%
Return on equity (ROE) 3%
Calculate Brauer's profit margin and debt-to-capital ratio assuming the firm uses only debt and common equity, so total assets equal total invested capital.

Respuesta :

pardeepba15

Answer:

Profit margin= 2%

Debt to capital= 0

Explanation:

We can  find out Profit margin through the formula of ROA

Return on Assets= Asset turnover* Profit margin

We have been give ROA, and ATO

ROA=3%

ATO=1.5X

So, 3%=1.5*X

X=2%

Profit margin is 2%

Now debt to capital

It can be calculated from the Dupont analysis which is

ROE=ROA*Equity multiplier

Equity multiplier is Assets/Equity

so,

3%=3%*x

EM= 1

Now, Equity multiplier tells us how much our assets are financed through equity so if it is 1, means Assets/Equity =1

So, Assets= Equity

So, all the assets are financed through equity. None of the assets are financed through debt. So, it suggest debt is 0

Debt to capital = Debt/Capital = 0/capital = 0

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