Question

The Income Statement and Balance Sheet can tell you your return on equity: profit divided by equity. Last year you made a profit of $29,345 and the balance shows your ending equity at $1,174,344. What is your return on equity?

Answer 1

The return on equity is 2.49%.

Step-by-step explanation:

The return on equity is a measure of the financial performance of an organization that shows the ability that it has to turn the assets into profit. As the return on equity is calculated by dividing the profit by the equity, the return on equity in this case is:

Return on equity= $29,345/$1,174,344=0.0249*100= 2.49%

The return on equity is 2.49%.

Answer 2

Answer: The Return on Equity is 2.49%.

Return on Equity or RoE, as it is commonly abbreviated, measures how efficiently the managers of a company have utilized the funds contributed by its shareholders.

RoE is calculated with the following formula:

`\mathbf{RoE = (Profit)/(Shareholders' Equity)}`

Substituting the values we get,

`RoE = (29,345)/(1,174,344) = 0.024988`

RoE is usually expressed as a percentage, so the RoE is 2.49%.

The greater the RoE, the more efficient the managers are in utilizing the shareholders' funds and is more desirable for investors.