Question

Sharpe Razor Company has total assets of $1,780,000 and current assets of $640,000. It turns over its capital assets four times a year and has $393,000 of total debt. Its return on sales is 3 percent. What is Sharpe’s return on shareholders' equity? (Round the final answer to 2 decimal places.) ROE %

Answer 1

The ROE is computed as follows:

Sales will be as follows:

= (Total Assets - Current Assets) x Asset turnover

= ($ 1,780,000 - $ 640,000) x 4

= $ 4,560,000

Equity will be as follows:

= Total Assets - Total debt

= $ 1,780,000 - $ 393,000

= $ 1,387,000

So, the ROE will be as follows:

= (Sales x Return on sales) / Equity

= ($ 4,560,000 x 3%) / $ 1,387,000

= $ 136,800 / $ 1,387,000

= 9.86%

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