Jiminy Cricket Removal has a profit margin of 10 percent tot

Jiminy Cricket Removal has a profit margin of 10 percent, total asset turnover of 1.14, and ROE of 14.32 percent.

What is this firm’s debt–equity ratio? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Debt–equity ratio ______ times

Solution

ROE=Profit margin*Total asset turnover*leverage

0.1432=0.1*1.14*leverage

leverage=0.1432/(0.1*1.14)

=1.256140351

leverage=Total assets/Equity

Hence total assets =1.256140351equity

Total assets=debt+equity

1.256140351equity=debt+equity

Hence debt =(1.256140351-1)equity

   =0.256140351equity

Hence debt-equity ratio=Debt/Equity
=0.26 times(Approx).