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Solve: Debt Ratio and ROE

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Company A has sales of $1,000, assets of $500, a debt ratio of 30 percent, and an ROE of 15 percent. Company B has the same sales, assets, and net income, but its ROE is 30 percent. What is B's debt ratio?

a. 25.0%
b. 35.0%
c. 50.0%
d. 52.5%
e. 65.0%

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Solution Summary

In about 115 words, this solution explains how to calculate the debt ratio. All calculations are provided.

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ROE = Profit Margin X Asset Turnover X Assets/Equity
For Company A we have
ROE = 15%
Profit margin = ?
Asset Turnover = Sales/Assets = 1,000/500=2
Debt Rate ...

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