Question

What will be Gamma Inc.'s return on equity if total asset turnover is 0.85, operating profit margin is 0.15, two-thirds of its assets are financed through equity, and debt burden is 0.6

Answer 1

Based on Gamma Inc's asset turnover, operating margin, and debt burden, the Return on Equity would be 11.48%.

What would be Gamma's Return on Equity?

This can be found by the formula:

= Asset turnover x Operating profit margin x Leverage ratio x Debt burden

Solving gives:

= 0.85 x 0.15 x (1 / (2/3)) x 0.6

= 11.475%

= 11.48%

In conclusion, the ROE is 11.48%.

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