Question

Henderson's Hardware has an ROA of 9%, a 7.5% profit margin, and an ROE of 18%. What is its total assets turnover? Do not round intermediate calculations. Round your answer to two decimal places. What is its equity multiplier? Do not round intermediate calculations. Round your answer to two decimal places.

Answer 1

The total assets turnover for Henderson's Hardware is 1.20, and the equity multiplier is 2.00 when calculated using the given ROA of 9%, profit margin of 7.5%, and ROE of 18%.

Step-by-step explanation:

The student is asking how to calculate the total assets turnover and the equity multiplier for Henderson's Hardware given its return on assets (ROA), profit margin, and return on equity (ROE).

To calculate the total assets turnover, we will use the formula: Total Assets Turnover = Sales/Total Assets. Since we know the ROA (which is Net Income/Total Assets) and the profit margin (which is Net Income/Sales), we can manipulate these formulas to find the Sales/Total Assets ratio. Specifically, we use the relationship that ROA = Profit Margin x Total Assets Turnover. By rearranging the formula, we find: Total Assets Turnover = ROA / Profit Margin.

Using the given values, the calculation would be Total Assets Turnover = 9% / 7.5% = 0.09 / 0.075 = 1.20. Therefore, Henderson's Hardware has a total assets turnover of 1.20.

To calculate the equity multiplier, we use the relationship that ROE = ROA x Equity Multiplier. Thus, Equity Multiplier = ROE / ROA. The calculation is Equity Multiplier = 18% / 9% = 0.18 / 0.09 = 2.00. Henderson's Hardware has an equity multiplier of 2.00.

Answer 2

1.2; 2

Step-by-step explanation:

Given that,

ROA = 9%

Profit margin = 7.5%

ROE = 18%

Using DuPont analysis:

Return On Assets = Net Profit Margin × Asset Turnover

Return On Assets ÷ Net Profit Margin = Asset Turnover

0.09 ÷ 0.075 = Asset Turnover

1.2 = Asset Turnover

Return On Equity = ROA × Equity Multiplier

0.18 = 0.09 × Equity Multiplier

0.18 ÷ 0.9 = Equity Multiplier

2 = Equity Multiplier