Answer:
a.
Net Income = $1,440,000 or $1.44 million
b.
ROA = 0.0873 or 8.73%
c.
ROE = 0.2028 or 20.28%
Explanation:
a.
The net income of the company can be calculated by multiplying the profit margin by the value of total sales.
Net Income = 18,000,000 * 0.08
Net Income = $1,440,000 or $1.44 million
b.
The return of assets or ROA is the value of Net Income expressed as a percentage of Total Assets. Thus, the formula for ROA is,
ROA = Net Income / Total Assets
ROA = 1.44 / 16.5
ROA = 0.08727272 rounded off to 0.0873 or 8.73%
c.
The ROE or return on equity is the profit or net income expressed as a percentage of total equity.
ROE = Net Income / Shareholders' Equity
First we need to calculate the value of total equity using the basic accounting equation.
Total Assets = Total Liabilities + Total Equity
16.5 = 9.4 + Total Equity
16.5 - 9.4 = Total Equity
Total Equity = $7.1 million
ROE = 1.44 / 7.1
ROE = 0.20281 or 20.281% rounded off to 0.2028 or 20.28%
