If Roten Rooters, Inc., has an equity multiplier of 1.45, total asset turnover of 1.33, and a profit margin of 8.50 percent. What is its ROE?

Question

Business

Cadence Vega

21 December, 23:17

If Roten Rooters, Inc., has an equity multiplier of 1.45, total asset turnover of 1.33, and a profit margin of 8.50 percent. What is its ROE?

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Derrick · Answer 1

ROE is 0.164 or 16.4 %

Explanation:

In corporate finance, return on common equity (ROE) is an index of return on equity. It constitutes one of the most concise indices of the company's economic results. It is a percentage index for which the net income (NI) produced in a year is compared to the equity (Eq) : the net capital, or equity of the year, that is to the production condition of direct relevance.

ROE=NI/Eq

If we have the characteristics of profit margin, total asset turnover and equity multiplier we can arrange new formula to calculate it as well. The equity on the first formula will be transformed to the nominator instead of denominator. The net income will also equal to the multiple of profit margin (PM) and total asset turnover (TAT). Then the new formula will be:

ROE = Eq Multiplier x PM x TAT = 1.45 * 1.33 * 0.85=0.164 or 16.4 %