During the latest year, Sky Inc. had total sales of $500,000, net income of 30,000, and its year-end total assets were $250,000. The firm's total debt to total assets ratio was 0.36. You can assume total debt is the same as total liabilities. What is firm's return on equity (ROE) ?

Question

Business

Danica Daugherty

4 May, 12:30

During the latest year, Sky Inc. had total sales of $500,000, net income of 30,000, and its year-end total assets were $250,000. The firm's total debt to total assets ratio was 0.36. You can assume total debt is the same as total liabilities. What is firm's return on equity (ROE) ?

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Answers (1)

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Salvatore Riggs · Answer 1

18.75%

Explanation:

Data provided in the question:

Total sales = $500,000

Net income = $30,000

Total assets = $250,000

Debt to total assets ratio = 0.36

Thus,

Total debt = 0.36 * $250,000

= $90,000

Shareholders equity = Total assets - Total debt

= $250,000 - $90,000

= $160,000

Now,

Return on equity = Net income : Shareholders Equity

= [ $30,000 : $160,000] * 100%

= 18.75%