Question

Last year central chemicals had sales of $205,000, assets of $127,500, a profit margin of 5.3%, and an equity multiplier of 1.2. The cfo believes that the company could reduce its assets by $21,000 without affecting either sales or costs. Had it reduced its assets in this amount, and had the debt-to-assets ratio, sales, and costs remained constant, by how much would the roe have changed?

Answer 1

The solution can be attained by using appropriate formula.

The debt to whole assets ratio is an indicator of fiscal leverage.

It tells you the % of total assets that were financed by liabilities, creditors, debt.

The debt to whole assets ratio is calculated by dividing total liabilities of corporation by its whole assets.