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# Assume following relationships for the Clayton Corporation

Assume you are given the...

Assume you are given the following relationships for the Clayton Corporation:
Sales/Total assets:          1.5X
Return on assets (ROA):      3%

Return on equity (ROE):      5%

Calculate Clayton’s profit margin and debt ratio.

These are the answers provided...but I dont know how to calculate to come to these solutions:

Net profit margin           2%
Debt Ratio          40%

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7/13/2009
Haider, Tutor
Category: Finance
Satisfied Customers: 355
Experience: Doing CAT
Verified

1

Return on assets = Profit margin x Assets turnover

.03 = profit margin x 1.5

.03/1.5 = .02 or 2 percent

therefore profit margin = 2 percent

2

Return on assets / Return on equity = .03/.05 = 0.6 or 60 percent of total assets is from equity, therefore debt = Assets - equity = 1-0.6 = 0.4 or 40 percent therefore debt ratio =40 percent

Haider, Tutor
Category: Finance
Satisfied Customers: 355
Experience: Doing CAT
Verified
Haider, Tutor
Category: Finance
Satisfied Customers: 355
355 Satisfied Customers
Experience: Doing CAT

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