Question

Orange electronics inc. has a profitability ratio of? 0.14, an asset turnover ratio of? 1.7, a debt to equity ratio of? 0.60, and a total asset to equity ratio of 1.60. what is the? firm's roe?

Answer 1

The ROE also known as return of equity is a measure of net income per equity. It can be determined by the product of net profit margin and the return on equity. In this case we are given with the values of profitability ratio, asset turnover ratio, a debt to equity ratio and total asset to equity ratio and is asked to determine the firms ROE. So to compute ROE, we need to filter out the necessary data and remain those related to asset as it is pointed to income and of course, equity rates. The expression that can be applicable here is

ROE = net profit margin * asset turnover * equity multiplier
SO, substutiting those asset and equity related values
ROE = 0.14*1.7*1.6 = 0.3808 = 38.08%