Question

Computer Geeks has sales of $618,900, a profit margin of 13.2 percent, a total asset turnover rate of 1.54, and an equity multiplier of 1.06. What is the return on equity?

Answer 1

Answer:

It is 21.55%

Explanation:

Profit = 13.2% * $618,900

         =$81,694.80

 Asset turnover ratio =   Sales/Total Assets

  Total Assets             =  Sales/Asset turnover ratio

                                    = $618,900/1.54

                                    = $401,883.12

Equity Multiplier            = Total Assets/ Total stock's holder equity

Total stock's holder equity = Total Assets /Equity Multiplier

                                        = $401,883.12/ 1.06

                                        = $379,135

Return on Equity =Profit/ Total stock's holder equity

                            = ($81,694.80/$379,135) * 100%

                            =21.55%