A firm has a net profit/pretax profit ratio of 0.625, a leverage ratio of 1.2, a pretax profit/EBIT of 0.9, an ROE of 17.82%, a current ratio of 8, and a return on sales ratio of 8%.The firm's asset turnover is
A)0.3.
B)1.3.
C)2.3.
D)3.3. 17.82% = 0.625 *0.9 * 8% * asset turnover * 1.2; asset turnover = 3.3.

Question

Quizplus · Accepted Answer

Using the formula ROE = net profit/total equity, we can calculate the total equity as (Net Profit/ROE) * 100 = (0.625/0.1782) * 100 = 3512.01. 
Using the leverage ratio formula, we can calculate the total assets as Total Equity/Leverage Ratio = 2933.34. 
Using the current ratio formula, we can calculate the current assets as Current Ratio * Current Liabilities = 800. 
Using the return on sales formula, we can calculate the net profit margin as Net Profit/Sales = 0.08, which implies the Sales = 7812.5. 
Using the pretax profit/EBIT formula, we can calculate the EBIT as Pretax Profit/0.9 = 1406.25. 
Finally, using the asset turnover formula, we can calculate the asset turnover as Sales/Total Assets = 2.6577 or approximately 2.3 (rounded to one decimal place).

A Firm Has a Net Profit/pretax Profit Ratio of 0