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Topic: Compute ROE LO: 2 1. Selected balance sheet and income statement information from the 2016 fiscal year end for America

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Answer #1

A.

Net income = $484,900

Average stockholders equity = 2,638,038

Return on equity = Net income/Average stockholders equity

= 484,900/2,638,038

= 18.38%

B.

Return on equity is the percentage return earned on investments made by owners i.e stockholders. It is different from return on investment.

Return on equity is a measure of profitability of the business. Higher the return on equity, better it is considered. It explains how effectively and productively investments made by owners are used to generate income.

Kindly comment if you need further assistance.

Thanks‼!

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