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A company’s net income after tax is $50,000. Shareholder’s equity of the company is $200,000 and its long-term liability is $30,000. What is the company’s return on equity?
A.
15%
B.
20%
C.
25%
D.
30%
E.
35%

Respuesta :

Answer:C. 25%.

Return on Equity or RoE is a measure of financial performance by a company. It measures how well a company's management has handled the funds provided by its shareholders.

We calculate RoE with the following formula:

[tex]\mathbf{RoE = \frac{Net Income}{Shareholder's Equity}}[/tex]

[tex]RoE = \frac{50,000}{200,000}[/tex]

[tex]\mathbf{RoE = 0.25}[/tex]

Since RoE is expressed as a percentage, RoE is 25%.

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