A company has a net profit margin of 4%, asset turnover of 2.0, and a debt-to-assets ratio of 60%. What is the ROE?
Answer: Debt-to-assets = 60%, which means equity to assets is 40%; this implies assets to equity (the leverage ratio) is 1 / 0.4 = 2.5
Why do we invert 40% to 1 / 0.40 = 2.5? I know this is a simple algebra question but I am remiss in the reasoning.