Question

Jackson Corporation has a profit margin of 6.6 percent, total asset tumover of 1.7, and ROE of 18.74 percent. What is this firm's debt-equity ratio? (Do not round intermediate calculations and round your answer to 2 decimal places, e.9., 32.16.)

Answer 1

The debt-equity ratio for Jackson Corporation is 0.598.

Step-by-step explanation:

To find the debt-equity ratio for Jackson Corporation, we first need to understand the components involved. The debt-equity ratio compares a company's total debt to its total equity. Total debt includes both short-term and long-term liabilities, while total equity represents the shareholders' equity or ownership in the company.

Given that we know the profit margin, total asset turnover, and ROE, we can use the formula:

ROE = Profit Margin x Total Asset Turnover x Equity Multiplier

The equity multiplier is calculated as the inverse of the debt-equity ratio, so we can rearrange the formula to solve for the debt-equity ratio:

Debt-Equity Ratio = 1 / Equity Multiplier

Plugging in the given values:

Equity Multiplier = ROE / (Profit Margin x Total Asset Turnover)

Debt-Equity Ratio = 1 / Equity Multiplier

Calculating:

Equity Multiplier = 18.74% / (6.6% x 1.7)

Equity Multiplier = 18.74% / 11.22%

Equity Multiplier = 1.671

Debt-Equity Ratio = 1 / 1.671

Debt-Equity Ratio = 0.598 (rounded to 2 decimal places)