The balance sheet of California Clothing reports total equity of $600,000 and $700,000 at the beginning and end of the year,respectively.Net income and sales for the year are $65,000 and $1,300,000,respectively.What is California Clothing's return on equity?

Question

Quizplus · Accepted Answer

Return on equity (ROE) is calculated as Net Income divided by Average Equity. The average equity is ($600,000 + $700,000) / 2 = $650,000. ROE = $65,000 / $650,000 = 0.10 or 10%.

The Balance Sheet of California Clothing Reports Total Equity of $600,000