Question

You are thinking of investing in Ski Sports, Inc. You have only the following information on the firm at year-end 2018: net income = $50,000, total debt = $1 million, and debt ratio = 70 percent. What is Ski's ROE for 2018?

Answer 1

Roe will be equal to 11.67 %

Step-by-step explanation:

We have given net income = $50000 = $0.05 million

Total debt = $1 million

Debt ratio = 70% = 0.70

We have to find the ROE

Debt ratio is ratio o debt and assets

So
`0.7=(1)/(assets)`

Assets = $1.42 million

Now equity will be equal to assets - debt

So equity = $1.42 - $1 = $0.42 million

Now equity ratio is equal to ratio of net income and equity

So equity ratio
`(0.05)/(0.42)=0.1167` = 11.67 %