Question

Needham Pharmaceuticals has a profit margin of 3.5% and an equity multiplier of 2.1. Its sales are $100 million and it has total assets of $46 million. What is its Return on Equity (ROE)? Round your answer to two decimal places.

Answer 1

Information provided:

Profit margin= 3.5%

Equity multiplier= 2.1

Sales= $100 million

Assets= $46 million

ROE is calculated using the below formula:

ROE= Net profit margin*Asset turnover*Equity multiplier

Asset turnover= Sales/ Assets

                       = 100/46

                       = 2.17

ROE= 0.035*2.17*2.1

        = 0.1595

Therefore, the return on equity is 15.95%.

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