Use the following ratios for Crimson Industries Inc.,to estimate the firm's ROE.Net profit margin = 8.62%,asset turnover = 1.68,return on assets = 14.48%,financial leverage = 1.35,debt to equity ratio = 35%.
A)2.10%
B)0.99%
C)5.07%
D)19.55%

Question

Quizplus · Accepted Answer

ROE can be calculated by multiplying the net profit margin and asset turnover, and then multiplying this result by  financial leverage:
Net profit margin * Asset turnover = 8.62% * 1.68 = 14.50%
ROA = 14.48%
ROE = ROA * financial leverage = 14.48% * 1.35 = 19.51%
The closest answer is D, 19.55%.

Use the Following Ratios for Crimson Industries Inc