Question

Last year Harrington Inc. had sales of $325,000 and a net income of $17,000, and its year-end assets were $230,000. The firm's total-debt-to-total-assets ratio was 45.0%. Based on the DuPont equation, what was the ROE? 13.02% 13.44% 13.83% 14.00% 14.80%

Answer 1

Answer:

13.44%

Explanation:

Debt to total assets = Total Debt / Total Assets

45% = Total debt / $230,000

Total Debt = $230,000 x 45% = $103,500

As we know

Assets = debt + Equity

$230,000 = $103,500 + Equity

Equity = $230,000 - $103,500 = $126,500

Return on Equity is the measure of financial performance which can be calculated by dividing net income for the year by total shareholder's equity.

Return on equity = Net income for the year / Shareholders equity

ROE = $17,000 / $126,500 = 0.1344 = 13.44%