contestada

A company has annual sales of $160 million, a net profit margin of 4%, and total assets of $90 million. It carries $10 million in accounts receivable, $25 million in inventory, has $55 million in total debt, and 5 million shares of common stock outstanding. Based on this information, the company's return on equity (ROE) is

Respuesta :

Answer:

18.29%

Explanation:

Return on Equity is the net profit available for equity/ Total equity value.

Total equity = Total assets - Total debt

= $90 million - $55 million = $35 million

Earnings for equity = Annual sales [tex]\times[/tex] net profit margin 4%

= $160 million [tex]\times[/tex] 4% = 6.4 million

Therefore, return on equity = [tex]\frac{Net\ profit\ for\ equity}{Total\ value\ of\ equity}[/tex]

= [tex]\frac{6.4\ million}{35\ million} \times 100 = 18.2857[/tex]

Therefore, ROE = 18.29%

Otras preguntas

Q&A Education