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Category Prior Year Current Year Accounts payable ??? ??? Accounts receivable 320,715 397,400 Accruals 40,500 33,750...

Category Prior Year Current Year
Accounts payable ??? ???
Accounts receivable 320,715 397,400
Accruals 40,500 33,750
Additional paid in capital 500,000 541,650
Cash 17,500 47,500
Common Stock 94,000 105,000
COGS 328,500 430,068.00
Current portion long-term debt 33,750 35,000
Depreciation expense 54,000 55,705.00
Interest expense 40,500 42,293.00
Inventories 279,000 288,000
Long-term debt 338,413.00 400,233.00
Net fixed assets 946,535 999,000
Notes payable 148,500 162,000
Operating expenses (excl. depr.) 126,000 162,082.00
Retained earnings 306,000 342,000
Sales 639,000 846,942.00
Taxes 24,750 48,751.00

What is the current year's return on equity (ROE)?

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Answer #1

Net income = Sales - COGS - Operating expenses - Depreciation expenses - interest expenses - taxes
= 846,942 - 430,068 - 162,082 - 55,705 - 42,293 - 48,751
= 108,043

Total shareholder's equity for Current year = Common stock + Additional paid in capital + Retained earnings
= 105,000 + 541,650 + 342,000
= 988,650

Total shareholder's equity for prior year = 94,000 + 500,000 + 306,000 = 900,000

Average shareholder's equity = (988,650 + 900,000) / 2 = 944,325

ROE = Net income / Average shareholder's equity
= 108,043 / 944,325
= 11.44%

ROE = 11.44%

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