Gemini Corp.reported the following balance sheet:
Gemini has sales of $600,000 and net income of $50,000.Gemini's return on equity is
A) 5.00%.
B) 50.00%.
C) 38.17%.
D) 41.13%.

Question

Gemini Corp.reported the following balance sheet:
 Gemini has sales of $600,000 and net income of $50,000.Gemini's return on equity is
A) 5.00%. 
B) 50.00%. 
C) 38.17%. 
D) 41.13%.

Quizplus · Accepted Answer

Return on Equity (ROE) is calculated as the ratio of net income to shareholders' equity.

ROE = Net Income / Shareholders' Equity

Net income = $50,000

Shareholders' Equity = Total Assets - Total Liabilities 
          = $1,000,000 - $500,000 = $500,000

ROE = $50,000 / $500,000 = 0.10 or 10%

Therefore, the correct option is C, which is closest to the calculated value of 10%.

Gemini Corp.reported the Following Balance Sheet