Question

Profitability and Asset Management Ratios You are thinking of investing in Tikki's Torches, Inc. You have only the following information on the firm at year-end 2018: net income = $680,000, total debt = $13.8 million, debt ratio -43%. What is Tikki's ROE for 2018?

Answer 1

Debt ratio = (Total liabilities/ Total assets) x 100

43 = ($13.8 milliions / total assets) x 100

Total assets = (13.8 / 43) x 100

= $ 32.09 millions

ROE = (Net income / Shareholders' equity) x 100

Shareholders' equity = Total assets - Total liabilities

= $32.09 - $13.8

= $ 18.29 millions

ROE = ($680000/ $18290000) x 100

= 3.72%

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