Question

Comparative balance sheets for Softech Canvas Goods for 2018 and 2017 are shown below. Softech pays no dividends, and instead reinvests all earnings for future growth.

Comparative Balance Sheets
($ in 000s)
	December 31
	2018			2017
Assets:
Cash	$	107		$	78
Accounts receivable		195			215
Short-term investments		88			78
Inventory		390			254
Property, plant, and equipment (net)		980			835
	$	1,760		$	1,460
Liabilities and Shareholders’ Equity:
Current liabilities	$	430		$	305
Bonds payable		255			255
Paid-in capital		685			685
Retained earnings		390			215
	$	1,760		$	1,460

Required:
1. Determine the return on shareholders’ equity for 2018.

Answer 1

1. Return on shareholder equity = Net Income/Average Shareholder Equity

Net Income for 2018 = $390 - 215 = $175

Average Sharehoder's Equity =  (Opening+closing equity) / 2

= (685+390+685+215) / 2 = $987.50

Return on shareholder equity = 175 / 987.50 = 17.72%