Question

Refer to the financial statement information from Vandelay, Corp. Compute the two components of return on equity and show how they combine to determine the return on equity.

Tessco Technologies – Statement of Income
For the Fiscal Year Ended	March 29, 2018
Revenues	$131,658
Cost of goods sold	95,859
Gross profit	35,799
Selling, general and administrative expenses	29,662
Income from operations	6,137
Interest income (expense), net	(713)
Income before provision for income taxes	5,424
Provision for income taxes	2,049
Net income	$3,375

Tessco Technologies – Balance Sheet
As of	March 29, 2018
ASSETS:
CURRENT ASSETS:
Cash and marketable securities	$4,459
Trade accounts receivable	15,757
Product inventory	18,872
Deferred tax asset	524
Prepaid expenses and other current assets	1,609
Total current assets	41,221
PROPERTY AND EQUIPMENT:
Land	2,186
Building and improvements	8,577
Information technology equipment and software	3,714
Equipment and furniture	4,821
Tooling	340
Less-accumulated depreciation and amortization	4,883
Property and equipment, net	14,755
GOODWIILL	3,950
TOTAL ASSETS:	$59,926
LIABILITIES:
CURRENT LIABILITIES:
Trade accounts payable	$16,394
Accrued expenses and other current liabilities	2,363
Current portion of long-term debt	294
Total current liabilities	19,051
DEFERRED TAX LIABILITY	42
LONG-TERM DEBT, net of current portion	7,441
TOTAL LIABILITIES	26,534
SHAREHOLDERS’ EQUITY:
Common stock, $0.01 par value,
4,343,608 shares outstanding as of March 28, 1997	47
Additional paid-in capital	20,242
Treasury stock, at cost, 261,572 shares	(2,844)
Retained earnings	15,947
TOTAL SHAREHOLDERS' EQUITY	33,392
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$59,926

Answer 1

Return on Equity:

Two Components of Return on Equity:
Net Income	$3,375
Total Shareholders' Equity	$33,392
Determine the Return on Equity:
Net Income (a)	$3,375
Total Shareholders' Equity (b)	$33,392
Return on Equity (a/b)	0.10

Therefore, return on equity is 0.10.