Question

Reliable Cars has sales of $807,200, total assets of $1,105,100, and a profit margin of 9.68 percent. The firm has a total debt ratio of 78 percent. What is the return on equity

Answer 1

Answer:

32.14%

Step-by-step explanation:

Assets = Equity + Liabilities.

If the firm has a debt ratio of 78%, then it must have an equity ratio of 22%

The return on equity is given by:

$ROE = \frac{Revenue* Margin}{Equity}$

For a margin of 9.68%, revenues of $807,200, and total equity of 22% x $1,105,100:

$ROE = \frac{\ 807,200*0.0968}{\ 1,105,100*0.22}\\ ROE =0.3214= 32.14\%$

Reliable Cars has a return on equity of 32.14%.