Question

Carroll, inc., has a total debt ratio of .45, total debt of $334,000, and net income of $43,000. what is the company’s return on equity

Answer 1

Debt ratio = 0.45

Total debt/Total assets = 0.45

334,000/Total assets = 0.45

Total assets = 334,000/0.45 = 742,222.22

Total equity = Total assets - Total debt = 742,222.22-334,000

Total equity = 408,222.22

Return on equity = Net income/total equity

Return on equity = 43,000/408222.22

Return on equity = 0.1053 = 10.53%

Return on Equity = 10.53%