Question

Lee sun's has sales of $3,650, total assets of $3,350, and a profit margin of 5 percent. the firm has a total debt ratio of 41 percent. what is the return on equity? 5.00 percent 5.45 percent 10.83 percent 9.23 percent 4.45 percent

Answer 1

Calculation of Return on Equity:

Return on Equity can be calculated using the following formula:

Return on Equity = Net Income / Equity

We can calculate net income using the following formula:

Net Income = Sales * Profit Margin = 3650*5% = $182.50

And we can calculate Equity using the following formula:

Equity = Total Assets * (1-Total Debt ratio) = 3350*(1-41%) = $1976.50

Now Finally,

Return on Equity = Net Income / Equity = 182.50 / 1976.50 = 9.23%

Hence the return on equity is 9.23%