Question

Use the following balance sheet and income statement to calculate the firm's return on equity (net income / common equity):

Balance Sheet		Income Statement
Assets:
Cash	$3,000	Sales (all credit)	$85,000
Accounts Receivable	5,000	Cost of Goods Sold	(51,000)
Inventories	6,500
Land	20,000	Operating Expenses	(15,000)
Other Fixed Assets	18,000	Depreciation	(1,000)
Liabilities & Owners' Equity		Interest Expense	(3,000)
Accounts Payable	4,000
Long Term Debt	26,700	Taxes	(5,100)
Common Stock	5,000
Paid in Capital	12,000
Retained Earnings	4,800

50.4%

45.4%

41.6%

58.9%

58.2%

Answer 1

Return on equity = Net inccome/Equity
= 9900/(5000+12000+4800) =	45.4%
[Equity = common stock+Paid in capital+Retained earnings]
WORKSHEET:
Balance Sheet		Income Statement
Assets:
Cash	3000	Sales (all credit)	85000
Accounts Receivable	5,000	Cost of Goods Sold	-51,000
Inventories	6,500
Land	20,000	Operating Expenses	-15,000
Other Fixed Assets	18,000	Depreciation	-1,000
	52500	EBIT	18000
Liabilities & Owners' Equity		Interest Expense	-3,000
Accounts Payable	4,000	EBT	15000
Long Term Debt	26,700	Taxes	-5,100
Common Stock	5,000	Net Income	9900
Paid in Capital	12,000
Retained Earnings	4,800
	52,500