Question

RATIO CALCULATIONS Assume the following relationships for the Caulder Corp.: Sales/Total assets 1.7x Return on assets (ROA) 7% Return on equity (ROE) 13% 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 places. % 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.

Answer 1

1. 4.12%
2. 46.15%

Step-by-step explanation:

1. The Return on Assets can be calculated by;

Return on assets = Profit margin * Assets turnover

So,

Profit Margin = Return on Assets/ Assets Turnover

= 7%/1.7

= 4.12%

2. The amount of debt in the company is the capital less equity and the Percent of Equity in the company is;

= Return on Assets / Return on Equity

= 7% / 13%

= 53.85%

Debt - to - Capital = 1 - 53.85%

= 46.15%