Answer:
Laserscope Inc.
Return on Equity (ROE):
= $1,466,400/$18,000,000 * 100
= 8.15%
Explanation:
a) Laserscope's Return on Equity (ROE) is a financial performance measure, calculated by dividing the net income or Earnings After Tax (EAT) by its total shareholders' equity. It is usually expressed as a percentage. So the above calculation is further multiplied by 100.
b) Data and Calculations:
Current assets = $16
Fixed assets = $20
Total assets = $36
Debt ratio = 50% of $36 million = $18 million
Therefore, Stockholders' equity = 50% (1 - 50%) or $18 million
EBIT = $4.1 million
Short-term debt = $6 million
Long-term debt = $12 million
Interest on short-term debt = $420,000 (7% * $6 million)
Interest on long-term debt = $1,236,000 (10.3% * $12 million)
Total interest expense = $1,656,000
Earnings before interest and taxes = $4,100,000
Interest expense 1,656,000
Earnings before taxes 2,444,000
Company tax (40%) (977,600)
Earnings after taxes (EAT) $1,466,400
