Question

If Roten Rooters, Inc., has an equity multiplier of 1.29, total asset turnover of 1.33, and a profit margin of 10.50 percent. What is its ROE?

Answer 1

18.01

Explanation:

The computation of return on equity is shown below:-

Return on equity = Profit margin × Asset turnover × Equity multiplier

= 10.50 × 1.33 × 1.29

= 0.105 × 1.33 × 1.29

= 0.1801485

or

= 18.01

Therefore for computing the return on equity we simply applied the above formula i.e by multiplying the profit margin with the asset turnover and the equity multiplier