Suppose a firms total assets turnover ratio falls from 10, Ask an Expert

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"Suppose a firm's total assets turnover ratio falls from 1.0 to 0.9, but at the same time its profit margin rises from 9% to 10% and its debt increases from 40% of total assets to 60%. Under these conditions, the ROE will increase. Explain why this is true"

So I know that ROE= TAT*EM*PM

ROE (original)= 1.0*.09*?

ROE (new)= .9*.1*?

I thought the EM should be 40% and 60% respecitively, but when I do that, the ROE decreases...so how do I find how much debt is if its 40% of total assets, but I don't know the amount of assets?

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92685098

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