Question

Comparative balance sheets for Softech Canvas Goods for 2016 and 2015 are shown below. Softech pays no dividends, and instead reinvests all earnings for future growth.

Comparative Balance Sheets
($ in 000s)
	December 31
	2016			2015
Assets:
Cash	$	125		$	90
Accounts receivable		225			245
Short-term investments		100			90
Inventory		450			290
Property, plant, and equipment (net)		1,100			925
	$	2,000		$	1,640
Liabilities and Shareholders’ Equity:
Current liabilities	$	490		$	335
Bonds payable		285			285
Paid-in capital		775			775
Retained earnings		450			245
	$	2,000		$	1,640

Required: 1. Determine the return on shareholders’ equity for 2016. (%) (Round your answer to 2 decimal places.)

     

Answer 1

1. Determine the return on shareholders' equity for 2016 (%).

Return on shareholders equity = Net income / Average shareholders equity

Net income = Increase in retained earning

= ($450 - $245)

= $205

Average shareholder equity = ($1,225 + $1,020)/2

= $1,122.5

Shareholder equity = ( Total assets - Total liabilities)

Total liability = Current liabilities + Bonds payable

Return =($205/$1,122.5) *100

= 18.26%