Wholesale Grocer's has total assets of $580,000 and total liabilities of $375,000. Net sales for the year are $523,000 and the profit margin is 10.5%. What is the return on equity?

Question

Quizplus · Accepted Answer

First, we need to calculate the owner's equity:
Owner's Equity = Total Assets - Total Liabilities
Owner's Equity = $580,000 - $375,000
Owner's Equity = $205,000

Next, we need to calculate the net income:
Net Income = Net Sales x Profit Margin
Net Income = $523,000 x 0.105
Net Income = $54,915

Finally, we can calculate the return on equity:
Return on Equity = Net Income / Owner's Equity
Return on Equity = $54,915 / $205,000
Return on Equity = 0.268 or 26.8%

Wholesale Grocer's Has Total Assets of $580,000 and Total Liabilities