Question

Company B has sales of $807,200, total assets of $768,100, and a profit margin of 6.68 percent. The firm has a total debt ratio of 54 percent. What is the return on equity

Answer 1

Answer:

15.26%

Explanation:

The computation of the return on equity is shown below;

We know that

Profit margin = Net income ÷Sales

So,  

Net income = ($807,200 × 6.68%)

= $53,920.96

Now  

Debt ratio = debt ÷ Total assets

Debt = (0.54 × $768,100)

= $414,774

We know that  

Total assets = debt + equity

equity = ($768,100 - $414,774)

= $353,326

Finally

ROE = Net income ÷ equity

=$53,920.96 ÷ $353,326

=15.26%