Answer:
The answer is 37.1%
Explanation:
The return on equity is a measure of how profitable a business is in relation to its equity.
The Return on equity is:
Net income ÷ Average Shareholders' equity
Stockholders' equity = Total Assets − Total Liabilities
Beginning shareholders' equity = $347,000 − $112,000 = $235,000
Ending shareholders' equity = $411,000 − $166,000 = $245,000
Average Shareholders'equity =
($235,000 + $245,000) ÷2
= $240,000
Using the Return on Equity formula:
$89,000 ÷ $240,000
= 0.371
= 37.1%
Answer:
37.1%
Explanation:
Return on Equity is the times of profit a owner can earn on the equity investment in the business. Higher ratio shows the business is more profitable.
Formula
Return on Equity ( ROE ) = Net Income / Average Equity
As per given Data
Prior Year Current Year
Total Assets $347,000 $411,000
Total Liabilities $112,000 $166,000
Net Income $65,000 $89,000
Common shares outstanding $30,000 $35,000
Market price common stock $38.00 $42.00
As we know
Assets = Equity + Liability
As we have assets and liabilities value placing current year data in the formula
$411,000 = Equity + $166,000
Beginning Equity = $347,000 - $112,000 = $235,000
Ending Equity = $411,000 - $166,000 = $245,000
Average Equity = ($235,000 + $245,000) / 2 = $240,000
Placing values in the formula of return on equity (ROE)
Return on equity = $89,000 / $240,000 = 0.371 = 37.1%
