Question

Question 59 1 pts Precision Aviation had a profit margin of 8.00%, a total assets turnover of 1.5, and an equity multiplier of 1.8. What was the firm's ROE? 0 22.68% O 16.63% O 20.95% 23.76% O 21.60% Previous Nexta 名0 00 4 FS F7 F8 8

Answer 1

Profit Margin is a ratio of Profit and Sales.

Profit ProfitM arginSales

Total assets turnover is a ratio of Total assets and sales.

Equity multiplier is a ratio of Total assets and Equity.

Return on equity (ROE) is a ratio of Profit and Equity

We have following information -

Profit margin = 8%

Total Assets Turnover = 1.5

Equity multiplier = 1.8

ROE = ?

Now, the product of profit margin , total assets turnover and equity multiplier is equal to return on equity(ROE)

by cross multiplication we will get -

This is true.

Thus, ROE = 8%*1.5*1.8 = 21.60%