Question

Anytown Bank has the following ratios:

a. Profit margin: 25%
b. Asset utilization: 13%
c. Equity multiplier: 9X
Calculate Anytown’s ROA and ROE.

Answer 1

Anytown Bank has a Return on Assets (ROA) of 3.25% and a Return on Equity (ROE) of 29.25%, calculated using the provided financial ratios of profit margin, asset utilization, and equity multiplier.

Step-by-step explanation:

To calculate the Return on Assets (ROA) and Return on Equity (ROE) for Anytown Bank, we will use the provided financial ratios: profit margin, asset utilization, and equity multiplier. The formulas for ROA and ROE are as follows:

• ROA = Profit Margin × Asset Utilization
• ROE = ROA × Equity Multiplier

Given the following ratios for Anytown Bank:

• Profit margin: 25%
• Asset utilization: 13%
• Equity multiplier: 9X

We can calculate the ROA and ROE:

1. ROA calculation: 25% Profit Margin × 13% Asset Utilization = 0.25 × 0.13 = 0.0325 or 3.25%
2. ROE calculation: 3.25% ROA × 9X Equity Multiplier = 0.0325 × 9 = 0.2925 or 29.25%

Therefore, Anytown Bank has an ROA of 3.25% and an ROE of 29.25%.