Question

Network Communications has total assets of $1,500,000 and current assets of $612,000. It turns over its fixed assets 3 times a year. It has $319,000 of debt. Its return on sales is 8 percent. What is its return on stockholders equity? (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.)

Answer 1

The return on stockholders' equity for Network Communications is calculated to be approximately 18.04%, obtained by subtracting debts from total assets to find equity and dividing the net income by the equity.

Step-by-step explanation:

To calculate the return on stockholders equity (ROE), we need to find the net income of Network Communications. We start by calculating the fixed assets, which are the total assets minus current assets: $1,500,000 - $612,000 = $888,000. Given that fixed assets are turned over 3 times a year, we can find the sales: $888,000 x 3 = $2,664,000. If the return on sales is 8 percent, the net income is 8% of sales: $2,664,000 x 0.08 = $213,120. Now, the equity can be calculated as total assets minus debts: $1,500,000 - $319,000 = $1,181,000. Finally, to find the ROE, we divide the net income by equity: $213,120 / $1,181,000 ≈ 0.1804, or 18.04% when converted to a percentage and rounded to two decimal places.

Answer 2

To calculate the return on stockholders' equity, subtract the total debt from the total assets to find the stockholders' equity. Calculate the net income by multiplying the return on sales by the sales revenue. Divide the net income by the stockholders' equity and multiply by 100 to get the percentage.

Step-by-step explanation:

To calculate the return on stockholders' equity, we need to calculate the stockholders' equity first. Stockholders' equity can be found by subtracting the total debt from the total assets. In this case, the stockholders' equity would be $1,500,000 - $319,000 = $1,181,000.

The return on stockholders' equity is then calculated by dividing the net income by the stockholders' equity and multiplying by 100 to get the percentage. The net income can be calculated by multiplying the return on sales by the sales revenue. In this case, the sales revenue would be the current assets turnover multiplied by the current assets.

So, the return on stockholders' equity would be (8% * ($612,000/$1,500,000)) * 100 = 3.072%. Therefore, the return on stockholders' equity is 3.072%.