Taylor's Men's Wear has a debt-equity ratio of 55 %, sales of $587,000, net income of $63,400, and total debt of $196,000. What is the return on equity?

Question

Quizplus · Accepted Answer

The return on equity (ROE) can be calculated by dividing the net income by the shareholder's equity. Given the debt-equity ratio is 55%, we can express equity as a percentage of debt, which is 100% / 55% = 181.82%. Therefore, the equity is 181.82% of the total debt, which is $196,000 * 1.8182 = $356,365.20. The ROE is then $63,400 / $356,365.20 = 0.1779 or 17.79%.

Taylor's Men's Wear Has a Debt-Equity Ratio of 55