A firm has a profit margin of 12%; total asset turnover of .55 and an equity multiplier of 2.2. What is the firm's ROA and ROE?
A) ROA = 6.6%; ROE = 14.52%
B) ROA = 7.2%; ROE = 15.84%
C) ROA = 9.5%; ROE = 20.9%
D) ROA = 8.1%; ROE = 17.82%

Question

Quizplus · Accepted Answer

ROA (Return on Assets) is calculated as Profit Margin multiplied by Total Asset Turnover: 12% * 0.55 = 6.6%. ROE (Return on Equity) is calculated as ROA multiplied by the Equity Multiplier: 6.6% * 2.2 = 14.52%.

A Firm Has a Profit Margin of 12%; Total Asset