Question

Windswept, Inc. 2010 Income Statement ($ in millions) Net sales $ 8,700 Less: Cost of goods sold 7,340 Less: Depreciation 405 Earnings before interest and taxes $ 955 Less: Interest paid 82 Taxable Income $ 873 Less: Taxes 306 Net income $ 567 Windswept, Inc. 2009 and 2010 Balance Sheets ($ in millions) 2009 2010 2009 2010 Cash $ 150 $ 185 Accounts payable $ 1,180 $ 1,260 Accounts rec. 920 730 Long-term debt 1,000 1,265 Inventory 1,520 1,550 Common stock $ 3,210 $ 2,900 Total $ 2,590 $ 2,465 Retained earnings 460 710 Net fixed assets 3,260 3,670 Total assets $ 5,850 $ 6,135 Total liab. & equity $ 5,850 $ 6,135 What is the return on equity for 2010?

Answer 1

Answer:

return on equity: 15.58%

Explanation:

return on equity:

$\frac{net \: income }{average\: equity}$

where:

average equity is:

$(beginning equity + ending equity) \div 2$

Equity 2009:

2,900 + 710 = 3,610

Equity 2010:

3,210 + 460 = 3,670

Average: (3,610 + 3,670)/2 = 3,640

567 / 3,640 = 15.58%