Question

Computer Geeks has sales of $387,891, a profit margin of 0.61, a total asset turnover rate of 2.28, and an equity multiplier of 0.35. What is the return on equity?

Answer 1

The return on equity can be calculated as :

NI/ EQUITY

So, the sales is $387,891

The profit margin is 0.61,

Hence, the net income is = 0.61* sales

= 0.61 * $387,891

= $236,613.51

Now, the total asset turnover ratio is 2.28

sales/ total assets = 2.28

total assets = Sales/ 2.28

= $387,891/ 2.28

= $170,127.6316

Now as the equity multiplier is 0.35

Assets/equity = 0.35

Assets/ 0.35 = equity

= $170,127.6316/ 0.35

= $4,86,078.9474

So, the return on equity is :

= $236,613.51/ $4,86,078.9474

= 48.68%