Frank's Used Cars has sales of $807,200, total assets of $768,100, and a profit margin of 6.68 percent. The firm has a total debt ratio of 54 percent. What is the return on equity?

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Quizplus · Accepted Answer

To find the Return on Equity (ROE), we first calculate the net income using the profit margin, then use the total debt ratio to find the equity, and finally calculate ROE.1. Net Income = Sales * Profit Margin = $807,200 * 6.68% = $53,921.762. Total Debt Ratio = Total Debt / Total Assets, so Equity = Total Assets - Total Debt. Given a total debt ratio of 54%, Equity = $768,100 * (1 - 54%) = $353,3263. ROE = Net Income / Equity = $53,921.76 / $353,326 = 15.26%Therefore, the return on equity is 15.26 percent.

Frank's Used Cars Has Sales of $807,200, Total Assets of $768,100