Question

Le Sun's has sales of $3,000, total assets of $2,500, and a profit margin of 5%. The firm has an equity multiplier of 2.5. What is the return on equity?

Answer 1

Le Sun's return on equity is 15%

Step-by-step explanation:

Assets turnover ratio = Net sales / Total fixed assets = $3,000 / $2,500 = 1.2 times

Return on Asset = Profit margin * Total assets turnover

ROA= 5% * 1.2 times

ROA = 6%

Return on Equity= ROA * Equity multiplier

ROE= 6% * 2.5

ROE= 15%

Le Sun's return on equity is 15%