A firm has ROA (Return on Assets) of 15% and has the debt-equityratio of 45%....

A firm has ROA (Return on Assets) of 15% and has the debt-equity ratio of 45%. What's the firm's ROE (Return on Equity)?

Solutions

Expert Solution

ROA = Net Income/ Total asset

ROE = Net Income /equity

ROA/ROE = Equity/Asset

ROE = ROA*Asset/Equity

ROE = ROA*(Debt + Equity)/Equity

=ROA*(1+Debt/Equity)

= 15*(1+0.45)

=15*1.45

=21.75%

jeff jeffy answered 1 year ago

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