Question

Aladdin Grocer's 2019 balance sheet shows average stockholders’ equity of $18,000 million, net operating profit after tax of $1,710million, net income of $665 million, and common shares issued of $2,874 million. The company has no preferred shares issued. Aladdin Grocer’s return on common stockholders’ equity for the year is: Select one:

A. 15.97%
B. 3.17%
C. 6.33%
D. 9.50%

Answer 1

B. Return on Equity = 3.17%

Step-by-step explanation:

The return on common stockholder's equity is a profitability measure showing how much net return the company is providing on the equity invested by shareholders.

The equity of common stockholders is made up of Share capital and reserves. The common shares is just one part of equity.

To calculate the return on equity, the formula is:

Return on Common Equity = Net Income / Shareholder's Equity

Here, the Net income is 665 m while the shareholder's equity is 18000m.

Return on equity = 665 / 18000 = 0.0369 or 3.69% rounded off to 3.7%

So, B is the correct answer