If Turnpoint Inc. has net income of $400,000, assets of $5,000,000, sales of $2,000,000, and debt of 2,000,000, what is its return on equity (ROE)?
A) 13.3%
B) 8%
C) 66.7%
D) 2%

Question

Quizplus · Accepted Answer

ROE is calculated as Net Income / Shareholder's Equity. Shareholder's Equity can be found by subtracting total liabilities (debt) from total assets. So, Shareholder's Equity = $5,000,000 - $2,000,000 = $3,000,000. Therefore, ROE = $400,000 / $3,000,000 = 0.133 or 13.3%.