Stephen's Auto Body Shop (Oshawa) has a debt-equity ratio of.6, a total asset turnover of 1.43, and a profit margin of 5 %. The firm has a return on assets of _____ % and a return on equity of _____ %.
A) 7.15; 4.29
B) 7.15; 11.44
C) 8.58; 4.29
D) 8.58; 7.15
E) 11.44; 7.15

Question

Quizplus · Accepted Answer

The return on assets (ROA) is calculated as the profit margin multiplied by the total asset turnover. In this case, ROA = 5% * 1.43 = 7.15%. The return on equity (ROE) can be calculated using the formula ROE = ROA * (1 + Debt/Equity ratio), which gives ROE = 7.15% * (1 + 0.6) = 7.15% * 1.6 = 11.44%.

Stephen's Auto Body Shop (Oshawa) Has a Debt-Equity Ratio Of a Total