Diagnosing Profitability: What is the debt to equity ratio?
If a firm has an ROE of 15%, a financial cost effect of 0.9, and an pre-tax ROIC of 10 percent, what is the debt-to-equity ratio (total deb divided by owners' equity)? Assume that the firm does not pay any tax.
Hello. I believe I can help you with this; however, would you please clarify "a financial cost effect of 0.09"? Is the "financial cost effect" the cost of debt, in other words and assuming no taxes, equal to interest expense divided by debt? Also, is the "0.9"
the result of that ratio (if so, it seems very high - are you sure it's not 0.09?) or is in percentage terms (0.9%, or 0.009, if so, it seems very low - are you sure it's not 9% or 0.09?)?
Comments
Hello. I believe I can help you with this; however, would you please clarify "a financial cost effect of 0.09"? Is the "financial cost effect" the cost of debt, in other words and assuming no taxes, equal to interest expense divided by debt? Also, is the "0.9" the result of that ratio (if so, it seems very high - are you sure it's not 0.09?) or is in percentage terms (0.9%, or 0.009, if so, it seems very low - are you sure it's not 9% or 0.09?)?