Final answer:
Roten Rooters has an equity multiplier of 1.15, suggesting low financial leverage, and a total asset turnover of 2.10, indicating high operational efficiency. The company is not heavily dependent on debt and effectively utilizes its assets to generate sale.
Step-by-step explanation:
A student has inquired about the financial leverage and efficiency of Roten Rooters, given an equity multiplier of 1.15 and a total asset turnover of 2.10. To understand these figures, it's essential to grasp what these financial ratios imply.
The equity multiplier is a measure of financial leverage and indicates the proportion of the company's assets that are financed by shareholders' equity.
An equity multiplier of 1.15 suggests that for every dollar of equity, Roten Rooters has $1.15 in assets. This indicates a low degree of financial leverage, implying that the company is not heavily reliant on debt to finance its assets.
Total asset turnover is a measure of efficiency that shows how well a company uses its assets to generate sales. The total asset turnover for Roten Rooters is 2.10, which means that for each dollar of assets, the company generates $2.10 in sales. This indicates a high level of operational efficiency.
Combining these insights, Roten Rooters seems to have a conservative capital structure with modest financial risk due to low leverage and is efficient in utilizing its assets to generate revenue.
It's important to consider these ratios in the broader context of the industry and the company’s financial strategies to get a complete picture of the company's financial health.