Midget Co. has a profit margin on sales of 4% and a ROE of 18%. If Midget's debt-to-equity ratio is .8, what is the total asset turnover ratio?
A) 2.500.
B) 5.625.
C) 2.000.
D) 10.125.

Question

Quizplus · Accepted Answer

The total asset turnover ratio can be calculated using the formula: ROE = Profit Margin * Total Asset Turnover * Equity Multiplier. Given ROE = 18%, Profit Margin = 4%, and Debt-to-Equity ratio = 0.8, the Equity Multiplier is 1 + Debt-to-Equity = 1.8. Solving for Total Asset Turnover: 0.18 = 0.04 * Total Asset Turnover * 1.8, Total Asset Turnover = 2.5.

Midget Co Has a Profit Margin on Sales of 4% and and a ROE