Stroud Sporting Gear Inc. has a net profit margin of 9%, a total asset turnover of 2.4, total assets of $225 million, and total equity of $120 million. What is the company’s return on equity?
Solution: | |||
Company’s return on equity | 40.50 | % | |
Working Notes: | |||
Total asset turnover = 2.4 | |||
Net sales /Total assets = 2.4 | |||
Net sales /$225 million = 2.4 | |||
Net Sales = 2.4 x $225 million | |||
Net Sales = $540 million | |||
Net Income = Net sales x Net profit margin | |||
Net Income = $540 million x 9% | |||
Net Income = $48.6 million | |||
Company’s return on equity =Net income /Total Equity | |||
Company’s return on equity =$48.6 million /$120 million | |||
Company’s return on equity =0.4050 | |||
Company’s return on equity =40.50 % | |||
Please feel free to ask if anything about above solution in comment section of the question. | |||
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