Assume jPhone, Inc., has an equity multiplier of 1.42, total asset turnover of 1.71, and a profit...

Question:

Assume jPhone, Inc., has an equity multiplier of 1.42, total asset turnover of 1.71, and a profit margin of 9 percent.

What is its ROE?

Financial Ratios:

Ratios can be described as a mathematical description of the company's performance. Ratios are generally categorized in various groups which include:

  1. Profitability ratios.
  2. Liquidity ratios.

Answer and Explanation:

The return on equity is computed as follows:

  • {eq}\text{ROE = Profit margin}\times \text{Asset turnover}\times \text{Equity multiplier} {/eq}

Profit margin=9%

Equity multiplier=1.42.

Assets turnover=1.71

  • {eq}\text{ROE }= \dfrac{9}{100}\times 1.71\times 1.42 {/eq}
  • {eq}\text{ROE }= 0.2185=21.85\% {/eq}

Learn more about this topic:

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Ratios and Proportions: Definition and Examples

from Geometry: High School

Chapter 7 / Lesson 1
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