In 2019, Venus Limited has net income of $21 million, earnings before tax of $30 million, earnings before interest and tax of $38 million, gross profit of $55 million, sales of $200 million, average assets of $300 million, and average shareholders’ equity of $120 million in 2019. Calculate return on equity in 2019 ?

Question

In 2019, Venus Limited has net income of $21 million, earnings before tax of $30 million, earnings before interest and tax of $38 million, gross profit of $55 million, sales of $200 million,  average assets of $300 million, and average shareholders’ equity of $120 million in 2019. Calculate return on equity in 2019 ?

BlackTom AI · Accepted Answer

First, identify the key numbers provided: net income is 21 million dollars, and average shareholders’ equity is 120 million dollars. The goal is to compute return on equity (ROE), which is defined as ROE = Net Income / Average Shareholders’ Equity.

Option A: 15.20%. To achieve 15.20%, you would need Net Income to be 0.152 × 120 = 18.24 million. Since the given net income is 21 million, this option does not match the actual calculation, so this percentage is incorrect.

Option B: 10.50%. This would correspond to Net Income of 0.105 × 120 = 12.6 million. The reported net income is higher (21 million), so this option is inconsistent with the data and is false.

Option C: 7.00%. A 7% ROE implies Net Income of 0.07 × 120 = 8.4 million. Again, the real net income is 21 million, so this option is not correct.

Option D: 17.50%. If ROE = 17.50%, then Net Income should be 0.175 × 120 = 21.0 million, which exactly matches the given net income. This aligns perfectly with the ROE formula and the provided numbers.

To summarize the concept: ROE measures how effectively a company uses its equity base to generate profits, calculated as Net Income divided by Average Shareholders’ Equity. Among the options, only 17.50% yields the computed Net Income of 21 million from an equity base of 120 million, making it the correct answer. Other options propose lower ROEs that would imply smaller net incomes than reported, revealing the mismatch with the supplied figures.

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