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A firm has a tax burden (defined as net profit/pretax profit) of 0.6, a leverage ratio (defined as assets/equity) of 1.3, an interest burden (defined as pretax profit/EBIT) of 0.8, a ROE (defined as net profit/equity) of 18%, and a return on sales (defined as EBIT/Sales) of 10%. What is the firm's asset turnover (defined as sales/assets)? The answer is 2.88 times. Please explain.

A firm has a tax burden (defined as net profit/pretax profit) of 0.6, a leverage ratio (defined as assets/equity) of 1.3, an interest burden (defined as pretax profit/EBIT) of 0.8, a ROE (defined as net profit/equity) of 18%, and a return on sales (defined as EBIT/Sales) of 10%. What is the firm's asset turnover (defined as sales/assets)? The answer is 2.88 times. Please explain.

Cornerstones of Financial Accounting
Cornerstones of Financial Accounting
4th Edition
ISBN:9781337690881
Author:Jay Rich, Jeff Jones
Publisher:Jay Rich, Jeff Jones
Chapter12: Fainancial Statement Analysis
Section: Chapter Questions
Problem 28MCQ
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A firm has a tax burden (defined as net profit/pretax profit) of 0.6, a leverage ratio (defined as assets/equity) of 1.3, an interest burden (defined as pretax profit/EBIT) of 0.8, a ROE (defined as net profit/equity) of 18%, and a return on sales (defined as EBIT/Sales) of 10%. What is the firm's asset turnover (defined as sales/assets)? The answer is 2.88 times. Please explain.
Transcribed Image Text:A firm has a tax burden (defined as net profit/pretax profit) of 0.6, a leverage ratio (defined as assets/equity) of 1.3, an interest burden (defined as pretax profit/EBIT) of 0.8, a ROE (defined as net profit/equity) of 18%, and a return on sales (defined as EBIT/Sales) of 10%. What is the firm's asset turnover (defined as sales/assets)? The answer is 2.88 times. Please explain.
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