A company had net income of $300,000 after paying taxes at 34 percent. The firm had...
A company had net income of $300,000 after paying taxes at 34 percent. The firm had revenues of $2,500,000. Their interest expense for the year was $150,000 while their operating expenses were $200,000. The firms approximate cost of goods sold is $1.7 million.
If leverage is 2, the current ratio is 1.2 and total asset turnover is 1.5, what is the company’s ROE?
Answer: 36%
Please explain how to find this answer by hand (without using Excel).
Homework Answers
ROE = PROFIT MARGIN X ASSETS TURNOVER X EQUITY MULTIPLIER
PROFIT MARGIN = NET INCOME/ REVENUES = 300000/2500000 = 12%
TOTAL ASSET TURNOVER = 1.5
EQUITY MULTIPLIER = LEVERAGE = 2
ROE = 12% X 1.5 X 2 = 36%
ANSWER : 36% (Thumbs up please)
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