Profitability and Asset Management Ratios You are thinking of investing in Wave Runnerz, Inc. You have only the following information on the firm at year-end 2011: net income = $10 million, total debt = $65 million, and debt ratio = 35%. What is Wave Runnerz's ROE for 2011?
A) 8.28%
B) 15.38%
C) 28.57%
D) 43.96%

Question

Quizplus · Accepted Answer

ROE = Net income / Shareholders' equityShareholders' equity = Total assets - Total debtTotal assets = Total debt / Debt ratioTotal assets = $65 million / 0.35 = $185.71 millionShareholders' equity = $185.71 million - $65 million = $120.71 millionROE = $10 million / $120.71 million = 8.28%

Profitability and Asset Management Ratios You Are Thinking of Investing