Question

The following table contains financial statement information for IzzyCorporation. ($ millions) Total Assets Net Income Sales Equity 2016 ………………………….. $105,000 $10,000 $95,000 $30,000 2017 ………………………….. $125,000 $11,000 $100,000 $31,000 Compute the return on equity (ROE) and return on assets (ROA) for 2017.

Answer 1

Return on Equity (ROE) for 2017

Return on Equity (ROE) = [Net Income / Average Equity] x 100

= [$11,000 / {($30,000 + $31,000)/2}] x 100

= [$11,000 / ($61,000/2)] x 100

= [$11,000 / $30,500] x 100

= 36.1%

Return on Asset (ROA) for 2017

Return on Asset (ROA) = [Net Income / Average Total Assets] x 100

= [$11,000 / {($105,000 + $125,000)/2}] x 100

= [$11,000 / ($230,000/2)] x 100

= [$11,000 / $115,000] x 100

= 9.6%