Gold Coast Organics has a total asset turnover of 2.5 and a net profit margin of 3.5%.The total debt ratio for the firm is 50%.Calculate Gold Coast Organic's return on equity.
A)17.5%
B)19.5%
C)21.5%
D)23.5%

Question

Quizplus · Accepted Answer

The return on equity (ROE) can be calculated using the formula ROE = (Net Profit Margin) * (Total Asset Turnover) * (Equity Multiplier), where the Equity Multiplier = 1 / (1 - Total Debt Ratio). Given a total debt ratio of 50%, the equity multiplier is 1 / (1 - 0.5) = 2. Therefore, ROE = 3.5% * 2.5 * 2 = 17.5%.

Gold Coast Organics Has a Total Asset Turnover of 2