Question

Summers, Inc., has net income of $50 million in the current year. Stockholders’ equity at the beginning and the end of the current year totaled $140 million and $160 million respectively. Total assets at the beginning and the end of the current year totaled $190 million and $210 million respectively. What is the company’s return on equity for the current year?

Answer 1

Answer:

ROE = 33.33%

Explanation:

return on equity:

$\frac{income}{average \: equity}$

where:

Average equity

$(beginning + ending equity) \div 2$

(140 + 160) / 2 = 150

return on equity : 50 / 150 = 1/3 = 0.3333 = 33.33%

The ROE measures the effectiveness of the managers to generate profit with their current net assets(equity)

This ROE of 33.33% rrepresent that for every dollar of equity the company generates 33 cents of income