Asked by Katelyn Goodridge on Jul 13, 2024

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Stephen's Auto Body Shop (Oshawa) has a debt-equity ratio of.6, a total asset turnover of 1.43, and a profit margin of 5 %. The firm has a return on assets of _____ % and a return on equity of _____ %.

A) 7.15; 4.29
B) 7.15; 11.44
C) 8.58; 4.29
D) 8.58; 7.15
E) 11.44; 7.15

Debt-Equity Ratio

A financial ratio that represents the comparative deployment of shareholders' equity and debt in asset financing.

Total Asset Turnover

A financial metric indicating how efficiently a company uses its assets to generate sales revenue.

Profit Margin

A financial ratio that shows the percentage of revenue that surpasses the cost of goods sold, indicating the financial health and profitability of a business.

  • Comprehend the significance and utilization of profitability metrics, including Return on Assets (ROA) and Return on Equity (ROE).
  • Determine and compute leverage metrics including times interest earned, overall debt ratio, and debt-to-equity ratio.
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GJ
Gloria JamesJul 14, 2024
Final Answer :
B
Explanation :
The return on assets (ROA) is calculated as the profit margin multiplied by the total asset turnover. In this case, ROA = 5% * 1.43 = 7.15%. The return on equity (ROE) can be calculated using the formula ROE = ROA * (1 + Debt/Equity ratio), which gives ROE = 7.15% * (1 + 0.6) = 7.15% * 1.6 = 11.44%.