Here is some financial statement information for a business. Calculate the return on equity ratio for the current year.

Prior year Current year
Cash 199 208
Accounts receivable 234 235
Short-term investments 227 265
Inventory 233 104
Property, plant and equipment 1,106 1,091
Sales 4,000 4,500
Net profit 2,000 2,278
Share capital 3,500 3,700
Retained earnings, closing balance 7,000 8,000

Calculate your answer as a percentage rounded to one decimal place. Do your rounding at the end of the calculation.

Question

Here is some financial statement information for a business. Calculate the return on equity ratio for the current year.

Prior year	Current year
Cash	199	208 
Accounts receivable	234 	235 
Short-term investments	227 	265 
Inventory	233 	104 
Property, plant and equipment	1,106 	1,091 
Sales	4,000	4,500
Net profit	 2,000	2,278
Share capital	 3,500	3,700 
Retained earnings, closing balance	7,000	8,000

Calculate your answer as a percentage rounded to one decimal place. Do your rounding at the end of the calculation.

BlackTom AI · Accepted Answer

To determine return on equity (ROE), we first restate what ROE measures: it is the net profit available to shareholders relative to the equity they have invested in the company.

Option: We compute ROE using net profit for the current year divided by the average shareholders' equity over the year.

Step 1 — Identify net profit for the current year: from the data, Net profit = 2,278.

Step 2 — Determine equity at the start and end of the year: 
- Opening equity = Share capital (opening) + Retained earnings (opening) = 3,500 + 7,000 = 10,500. 
- Closing equity = Share capital (closing) + Retained earnings (closing) = 3,700 + 8,000 = 11,700.

Step 3 — Compute average equity for the year: (Opening equity + Closing equity) / 2 = (10,500 + 11,700) / 2 = 11,100.

Step 4 — Calculate ROE: Net profit / Average equity = 2,278 / 11,100 ≈ 0.2050, which as a percentage is 20.5%.

Step 5 — Rounding instruction: round to one decimal place, which yields 20.5%.

Additional note — alternative baselines: Some texts or problems might use different bases for equity (for example, using closing equity only or excluding certain non-operational items). If you were to use closing equity alone (11,700) you would get 2,278 / 11,700 ≈ 19.5%, and if you used a different average equity figure such as 9,000, you could arrive at 25.3%, but that would reflect a nonstandard definition or a mismatch in the base figures provided. The standard approach with the given numbers is 20.5%.

BACC011 Week 6: Practice Quiz

View Explanation

Log in for full answers

Similar Questions

Which of the following statements is not correct?

CANADIAN TIRE- Part 2 of 11 Use two decimal points. Do not add percentage (%), or times (X) with the number. If ROE is 15.149%, enter 15.15. Similarly, if the answer is 0.073, write as 7.3, and if answer is 0.032, write as 3.2. Calculate Return on Equity in percentage (%) for 2020

After restructuring, what is the expected return on Dyson's equity?

Before restructuring, what is the expected return on Dyson's equity?

All else constant, an increase in which of the following must increase the return on equity?

Calculate GreenTech’s Return on Equity. Note: Round to two decimal places and provide your answer in percent without the unit sign, i.e., X,XXX.XX.

More Practical Tools for Students Powered by AI Study Helper

Homework AI Solver

Stylized AI Paper Writer

Plagiarism Checker Assistant

Citation AI Academic Writing Tool

In-Class Translation Assistant

AI Note Generator

AI Quiz Answers

Past Exam Questions from University Test Bank

Smart Practice Assistant

Adaptive Practice

Making Your Study Simpler