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 Return on Equity ratio is approximately:

Question

Quizplus · Accepted Answer

Return on Equity (ROE) = Net Income/ Average Stockholders' Equity

To find average stockholders' equity:

Average Stockholders' Equity = (Beginning Stockholders' Equity + Ending Stockholders' Equity) / 2

Substituting the given values,

Average Stockholders' Equity = ($32.55 million + $38.15 million) / 2
= $35.35 million

Now, we can calculate ROE as:

ROE = $5.6 million / $35.35 million
= 0.1584 or 15.84%

Rounding off to two decimal places, the ROE is approximately 0.16, so the correct answer is B.

A Company Has Net Income of $5