A company has net income of $5.6 million. Stockholders' equity at the beginning of the year is $32.55 million and, at the end of the year, it is $38.15 million. The only change to stockholders' equity came from net income. The ROE ratio is approximately:
A) 1.15.
B) 0.16.
C) 0.87.
D) 6.64.

Question

Quizplus · Accepted Answer

The Return on Equity (ROE) is calculated as Net Income divided by Average Stockholders' Equity. Average Stockholders' Equity is ($32.55 million + $38.15 million) / 2 = $35.35 million. ROE = $5.6 million / $35.35 million = 0.1585, approximately 0.16.

A Company Has Net Income of $5