Question

Frank's used cars 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

Return on equity is the economic ratio that is calculated to determine the ability of a company to develop profit for the equity shareholders. The formula is:

ROE = Net income/Equity × 100

Return on equity

Net income = Sales xProfit margin

Net income = $807,200 x6.68%

Net income = $807,200 x0.0668

Net income = $53,920.96

Debt = Debt ratio x Total assets

Debt = 54% * $768,100

Debt = 0.54 * $768,100

Debt = $414,774

Equity = Total assets - Debt

Equity = $768,100 - $414,774

Equity = $353,326

ROE = Net income/Equity × 100

ROE = $53,920.96/$353,326 × 100

ROE = 15.26%

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