Question

RATIO CALCULATIONS Assume the following relationships for the Caulder Corp.: Sales/Total assets 1.4x Return on assets (ROA) 6% Return on equity (ROE) 9% Calculate Caulder's profit margin assuming the firm uses only debt and common equity, so total assets equal total invested capital. Round your answer to two decimal places. 4.29 % Calculate Caulder's debt-to-capital ratio assuming the firm uses only debt and common equity, so total assets equal total invested capital. Round your answer to two decimal places. %

Answer 1

33.33%

Step-by-step explanation:

The solution of debt-to-capital ratio is provided below:-

Here, to find out the debt to capital ratio we need to follow some steps which is following below:-

Step 1

Return on equity = Return on assets × (Assets ÷ Equity)

9% = 6% × (Assets ÷ Equity)

(Assets ÷ Equity) = 9% ÷ 6%

= 1.5%

Step 2

Debt ÷ Equity = (Assets ÷ Equity) - 1

= 1.5% - 1

= 0.5%

and finally

Debt-to-capital = 0.5% ÷ (1 + (Debt ÷ Equity)

= 0.5% ÷ (1 + 0.5%)

= 0.5% ÷ 1.5%

= 33.33%

So, we have calculated the debt to capital by using the above formula.