Question

Needham Pharmaceuticals has a profit margin of 2% and an equity multiplier of 1.9. Its sales are $110 million and it has total assets of $40 million. What is its return on equity (ROE)? Do not round intermediate calculations. Round your answer to two decimal places

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Answer 1

Profit margin = 2%

Equity multiplier = 1,90

Total assets = $40,000,000

Sales = $110,000,000

Equity multiplier = Total Assets / Total stockholder's Equity

1.90 = $40,000,000 / Total stockholder's Equity

Total stockholder's Equity = $21,052,631.58

Net income = Sales * Profit margin

Net income = $110,000,000 * 2% = $2,200,000

Return on Equity (ROE) = Net Income / Total stockholder's Equity

Return on Equity (ROE) = $2,200,000 / $21,052,631.58

Return on Equity (ROE) = 0.1045

or Return on Equity (ROE) = 10.45%