Question

Return on Equity: In the latest year, Photon, Inc. reported $276,000 in net income. The firm maintains a debt ratio of 30% and has total assets of $3,000,000. What is Photon's return on equity?

Answer 1

13.14%

Step-by-step explanation:

Debt / Total assets = 0.30

=>Debt = 0.30 * $3,000,000

Debt = $900,000

=> Equity = Total assets - Debt

Equity = $3,000,000 - $900,000

Equity = $2,100,000

Return on equity = Net income / Equity * 100

Return on equity = $276,000 / $2,100,000 * 100

Return on equity = 0.13142857 * 100

Return on equity = 13.142857%

Return on equity = 13.14%