Question

Refer to the photo.
What was the return on equity ( after taxation) in 2014?
a) 12.3%
b) 19.8%
c) 20.8%
d) 9.6%

2014 2013 £'000 £'000 Revenue 1,500 1,300 Cost of sales 800 700 700 300 Gross Profit Operating Expenses Operating profit Finance charges Profit before taxation 400 80 320 Taxation Profit for year 250 1200 1000 Ordinary share capital (50p) Share premium Account 60 40 Retained profits 1100 1350 2610 2140

Answer 1

Return on Equity:-

Return on Equity is a financial ratio used by the company for measuring how much return is earned for the company's owner. It is calculated by dividing net income available for common shareholders by total stockholder's equity.

Return on Equity = (Net Income after tax for 2014/Stockholder's Equity at the end of 2014)*100

Stockholder's Equity = Ordinary Share Capital+Share Premium Account+Retained Profits

= 1,200+60+1,350 = $\pounds$ 2,610

Net Income after tax for 2014 = $\pounds$ 250

Return on Equity = (250/2,610)*100 = 9.6% (Rounded to one decimal place).

Therefore the return on equity ( after taxation) in 2014 was 9.6%. Hence the correct option is d) 9.6%.