Question

Selected financial information for ELX Corporation is reproduced below: 1. Net operating assets (NOA) turnover (average NOA equals ending NOA) is 4. 2. Net operating profit after tax (NOPAT) margin is 6% 3. Leverage ratio (average net financial obligation to average common equity) is 2.5, and the spread is 7.3%. What is ELX's return on common equity

Answer 1

the Return on common equity is 43.45%

Step-by-step explanation:

The computation of the return on common equity is shown below;

As we know that

Return on common equity = Return on net operating assets + leverage × spread

= (4.2 × 6%) + 2.5 × 7.3%

= 25.2% + 18.25%

= 43.45%

Hence, the Return on common equity is 43.45%

The above formula should be applied for the same