S.Panya has total assets of $1,000,000; common equity of $400,000; a gross profit of $800,000; total operating expenses of $620,000; interest expense of $20,000; income taxes of $74,000; and preferred dividends of $30,000.What is S.Panya's return on equity?
A) 7.5%
B) 20.0%
C) 21.5%
D) 14.0%

Question

Quizplus · Accepted Answer

Return on equity (ROE) is calculated as Net Income divided by Common Equity. Net Income = Gross Profit - Operating Expenses - Interest Expense - Income Taxes - Preferred Dividends = $800,000 - $620,000 - $20,000 - $74,000 - $30,000 = $56,000. ROE = $56,000 / $400,000 = 14.0%.

SPanya Has Total Assets of $1,000,000; Common Equity of $400,000;