Old Town Cafe has a profit margin of 11%, total asset turnover of 2 and ROE of 20%. What is the debt-equity ratio for this Cafe?
Help me. Thank you :)
To calculate the debt-equity ratio, we need to first find the equity multiplier. The equity multiplier is calculated by dividing the total asset turnover by the return on equity (ROE) percentage.
Equity Multiplier = Total Asset Turnover / ROE
Given:
Total Asset Turnover = 2
ROE = 20%
Equity Multiplier = 2 / 0.20
Equity Multiplier = 10
The equity multiplier represents how much total assets are financed by equity.
To find the debt-equity ratio, subtract 1 from the equity multiplier and divide the result by 1:
Debt-Equity Ratio = (Equity Multiplier - 1) / 1
Debt-Equity Ratio = (10 - 1) / 1
Debt-Equity Ratio = 9
Therefore, the debt-equity ratio for Old Town Cafe is 9. This means that the cafe has 9 times more debt than equity.
To find the debt-equity ratio for Old Town Cafe, we need to know the formula for debt-equity ratio. The debt-equity ratio measures the proportion of a company's financing that comes from debt compared to equity. It is calculated by dividing the total debt of a company by its total equity.
The formula for debt-equity ratio is:
Debt-Equity Ratio = Total Debt / Total Equity
To find the total debt and total equity for Old Town Cafe, we need more information. Unfortunately, the question does not provide this information. We would need the total debt and total equity figures from the financial statements of the company.
If you have access to the financial statements of Old Town Cafe, you can find the total debt and total equity in the balance sheet. The total debt includes both short-term and long-term liabilities, while total equity represents the ownership interest of shareholders in the company.
Once you have the values for total debt and total equity, you can simply divide the total debt by the total equity to calculate the debt-equity ratio.
If you could provide more information or access to the financial statements of Old Town Cafe, I can assist you further in calculating the debt-equity ratio.