A firm with sales of $1,000,000, net income after taxes of $30,000, total assets of $1,500,000, and total liabilities of $750,000 has a return on equity of
A) 4 percent.
B) 15 percent.
C) 20 percent.
D) 3 percent.

Question

Quizplus · Accepted Answer

Return on equity (ROE) is calculated as net income divided by shareholders' equity. Shareholders' equity is total assets minus total liabilities, which is $1,500,000 - $750,000 = $750,000. ROE = $30,000 / $750,000 = 0.04 or 4%.

A Firm with Sales of $1,000,000, Net Income After Taxes