Question

A company’s net income after tax is $50,000. Shareholder’s equity of the company is $200,000 and its long-term liability is $30,000. What is the company’s return on equity? A. 15% B. 20% C. 25% D. 30% E. 35%

Answer 1

Answer: C.25%.

We use the following formula to compute the Return on Equity (RoE)

`Return on Equity = (Net Income)/(Shareholder's equity) *100`

Substituting the values we get,

`Return on Equity = (50000)/(200000) *100`

`Return on Equity = (1)/(4) *100`

`Return on Equity = 25%`

RoE is a measure of a company's financial performance. Generally, the higher the value, the better the company's performance.