If Roten Rooters, Inc., has an equity multiplier of 1.61, total asset turnover o
ID: 2649387 • Letter: I
Question
If Roten Rooters, Inc., has an equity multiplier of 1.61, total asset turnover of 2.30, and a profit margin of 4.1 percent, what is its ROE? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
If Roten Rooters, Inc., has an equity multiplier of 1.61, total asset turnover of 2.30, and a profit margin of 4.1 percent, what is its ROE? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
Explanation / Answer
- Equity Multiplier = Total Assets / Equity
1.61 = Total Assets / Equity
Total Assets = 1.61Equity
- Total Asset Turnover = Net Sales / Total Assets
2.30 = Net Sales / Total Assets
Net Sales = 2.30Total Assets
Net Sales = 2.30 x 1.61Equity = 3.703Equity (Since, Total Assets = 1.61Equity)
- Profit = Sales x Profit Margin = 3.703Equity x 4.1% = 0.15Equity
- ROE = Profit / Equity = 0.1518Equity / Equity = 0.1518 or 15.18%
Thus, ROE = 15.18%