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9 February, 11:22

During the latest year, Sky Inc. had total sales of $500,000, net income of 30,000, and its year-end total assets were $250,000. The firm's total debt to total assets ratio was 0.36. You can assume total debt is the same as total liabilities. What is firm's return on equity (ROE) ?

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  1. 9 February, 12:58
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    18.75%

    Explanation:

    Data provided in the question:

    Total sales = $500,000

    Net income = $30,000

    Total assets = $250,000

    Debt to total assets ratio = 0.36

    Thus,

    Total debt = 0.36 * $250,000

    = $90,000

    Shareholders equity = Total assets - Total debt

    = $250,000 - $90,000

    = $160,000

    Now,

    Return on equity = Net income : Shareholders Equity

    = [ $30,000 : $160,000] * 100%

    = 18.75%
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