Question

The Blue Bird LTD has total assets of $223 500, a debt- equity ratio of 0.45, and return on equity is 12%. What is the net income?

Answer 1

The Net Income For Blue Bird LTD. is $69362.

Explanation:

As per Accounting Equation;

Total Asset = total equity + total liabilities

as we  are don't have equity so we will take it as x and liabilities as y

Now our equation will be,

$223500 = x+y ........................................................................(i) equation

we are also given a debt equity ratio =    $\frac{Total of Debt}{Total of equity}$

                           Debt Equity Ratio =        $\frac{Y}{X}$  

                                 .45x   =          y................................................... (ii) equation

so now putting y of (ii) equation into (i) equation, we will get

               $223500 =  x+ .45x

                        x =$\frac{223500}{1.45}$

                        x (i.e equity) =  $154,138

           and,        y (debt )      = $69362

to find net income , where Return on equity (ROE) =$\frac{net income}{shareholder equity}$

                                                 net income  = .12×$154138

                                                 net income   = $18497