Zombie Corp. has a profit margin of 6.5 percent, total asset turnover of 1.9, and ROE of 18.64 percent. What is this firm’s debt-equity ratio?

Zombie Corp. has a profit margin of 6.5 percent, total asset turnover of 1.9, and ROE of 18.64 percent. What is this firm’s debt-equity ratio? (Do not round intermediate calculations and round your final answer to 2 decimal places, e.g., 32.16.)

  

Debt-equity ratio

 

Explanation:

This question gives all of the necessary ratios for the DuPont Identity except the equity multiplier, so, using the DuPont Identity:

ROE = (PM)(TAT)(EM)

ROE = .1864 = (.065)(1.90)(EM)

  

EM = .1864 / (.065)(1.90)

EM = 1.51

  

D/E = EM – 1

D/E = 1.51 – 1

D/E = .51