Question

Return on Equity (ROE) = LTM Net Income / (LTM Equity + Last FY Equity) / 2. Return on Assets (ROA) = LTM Net Income / Average Assets Dividend Yield = Quarterly Dividend x 4 / Current Share Price Suppose Q Corp has Net Income of $18M, LTM Assets of $93M, Assets one year prior of $87M, Quarterly Dividend of $0.95, Current Share Price of $80, LTM Equity of $58M and prior Equity of $62M.

1. Compute ROE

2. Compute ROA

3. Compute Dividend Yield

Answer 1

1). Return on equity(ROE) = Net income/Average Equity

where, Average Equity = (Current equity + Last Equity)/2 = ($58M + 62M)/2 = $60M

ROE = $18M/$60M

ROE = 30%

2). Return on Assets(ROA) = Net income/Average Assets

where, Average Asset = (Current Asset + Last year Asset)/2 = ($93M + 87M)/2 = $90M

ROA = $18M/$90M

ROA = 20%

3) Dividend Yield = (Quarterly Dividend*4)/ Current Share Price

Dividend Yield = ($0.95*4)/$80

Dividend Yield = 4.75%

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