Question

If Roten Rooters, Inc., has an equity multiplier of 1.42, total asset turnover of 1.39, and a profit margin of 6.50 percent. What is its ROE?

rev: 09_17_2012

11.55%

-3.79%

14.11%

12.32%

12.83%

Answer 1

profit margin = Net income/Turnover = .065

Turnover = Net income/.065

total asset turnover = Turnover/Total Assets = 1.39

Total Assets = Turnover/1.39

= (Net income/.065)/1.39

Total Assets = Net income/.09035

equity multiplier = Total Assets/Total shareholders equity = 1.42

Total shareholders equity = Total Assets//1.42

= (Net income/.09035)/1.42

Total shareholders equity = Net income/.128297

ROE = Net income/Total shareholders equity

= Net income/(Net income/.128297)

= 12.83%