Question

A company has net income of $7.10 million. Stockholders' equity at the beginning of the year is $35.05 million and, at the end of the year, it is $43.15 million. The only change to stockholders' equity came from net income. The return on equity ratio is approximately:

Answer 1

Return on equity ratio 18.16%

Step-by-step explanation:

Calculation for the return on equity ratio

This first step is to find the Average stock holder equity.

Using this formula

Average stock holder equity =Beginning stock holder equity + ending stock holder /2

Let plug in the formula

Average stock holder equity=$35.02+$43.15/2

Average stock holder equity =$78.17/2

Average stock holder equity =$39.085

Second step is to calculate for the return on equity ratio

Using this formula

Return on equity ratio=NET INCOME/STOCKHOLDERS EQUITY

let plug in the formula

Return on equity ratio=$7.10/$39.085

Return on equity ratio=0.18165 ×100

Return on equity ratio=18.16%

Therefore The return on equity ratio is approximately 18.16%