The following comes from Simon Company's year-end financial statements: Sales $250,000, Cost of goods sold $100,000, Net income $12,500, Total assets $187,500 and Total liabilities $67,500.The return on equity (ROE) for the year is closest to?
A)6.6%
B)10.4%
C)133.3%
D)208.3%

Question

Quizplus · Accepted Answer

First, we need to calculate the equity by subtracting total liabilities from total assets: 
Equity = Total Assets - Total Liabilities = $187,500 - $67,500 = $120,000

Next, we can use the formula for return on equity: 
ROE = Net Income / Equity

Plugging in the numbers we have: 
ROE = $12,500 / $120,000

ROE = 0.104

ROE expressed as a percentage is 10.4%, which is closest to choice B.

The Following Comes from Simon Company's Year-End Financial Statements: Sales