The financial statements of Flathead Lake Manufacturing Company are given below: Note: The common shares are trading in the stock market for $15 per share
-Refer to the financial statements of Flathead Lake Manufacturing Company.The firm's return on equity ratio for 2005 is _________.Please keep in mind that when a ratio involves both income statement and balance sheet numbers,the balance sheet numbers for the beginning and end of the year must be averaged.
A) 6.5%
B) 26.5%
C) 33.4%
D) 38.0%

Question

The financial statements of Flathead Lake Manufacturing Company are given below:  Note: The common shares are trading in the stock market for $15 per share
-Refer to the financial statements of Flathead Lake Manufacturing Company.The firm's return on equity ratio for 2005 is _________.Please keep in mind that when a ratio involves both income statement and balance sheet numbers,the balance sheet numbers for the beginning and end of the year must be averaged.
A) 6.5% 
B) 26.5% 
C) 33.4% 
D) 38.0%

Quizplus · Accepted Answer

ROE=Net income/average shareholders' equity
Average shareholders' equity = (beginning shareholders' equity + ending shareholders' equity)/2
= ($5,400,000 + $7,200,000)/2
= $6,300,000
Net income = $1,680,000
ROE = $1,680,000/$6,300,000
= 0.265 or 26.5%

The Financial Statements of Flathead Lake Manufacturing Company Are Given