Question

Excerpts from Dowling Company's December 31, 2021 and 2020, financial statements and key ratios are presented below (all numbers are in millions): 2021 2020 Accounts receivable (net) $ 25 $ 36 Net sales $ 135 $ 120 Cost of goods sold $ 80 $ 75 Net income $ 25 $ 37 Inventory turnover 6.20 Return on assets 12.4 % Equity multiplier 2.56 Dowling's return on equity for 2021 is: (Round your answer to 1 decimal places.) Multiple Choice 27.1%. 31.7%. 18.5%. 8.6%.

Answer 1

Answer:

Dowling's return on equity = 31.7%

Explanation:

ROE = net income/total equity

Total Equity = Total Assets / Equity multiplier

TOTAL assets = net income /Roa

To get the ROE we must use the three above mentioned formulas. Firstly in the required formula of ROE total equity is unknown so we must find it using total equity fomula but in that formula Assets are unknown then we must first find it the in the total assets fomula.

Total assets = 25 mill/ 0.124= 201,612,903.20

Then substitute on TOTAL equity = 201,612,903.20/2.56= 78,755,040.32

The substitute on ROE= 25 mil / 78,755,040.32 = 0.31744*100=31.7%