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In November 2017,Perrigo Co.(PRGO)had a share price of $39.20.They had 91.33 million shares outstanding,a market-to-book ratio of 3.76.In addition,PRGO had $845.01 million in outstanding debt,$163.82 million in net income,and cash of $257.09 million.
-Perrigo's return on equity (ROE)is closest to:
A)4.6%.
B)9.1%.
C)17.2%.
D)27%.

Question

Quizplus · Accepted Answer

Return on equity (ROE) is calculated as Net Income divided by Shareholder's Equity. First, calculate the market value of equity: 91.33 million shares * $39.20 = $3,579.536 million. Then, use the market-to-book ratio to find the book value of equity: $3,579.536 million / 3.76 = $951.46 million. Finally, calculate ROE: $163.82 million / $951.46 million = 0.172 or 17.2%.

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