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In: Finance

Category Prior year Current year Accounts payable 41,400 45,000 Accounts receivable 115,200 122,400 Accruals 16,200 13,500...

Category

Prior year

Current year

Accounts payable

41,400

45,000

Accounts receivable

115,200

122,400

Accruals

16,200

13,500

Additional paid in capital

200,000

216,660

Cash

???

???

Common Stock @ par value

37,600

42,000

COGS

131,400

175,742.00

Depreciation expense

21,600

22,788.00

Interest expense

16,200

16,458.00

Inventories

111,600

115,200

Long-term debt

135,000

138,348.00

Net fixed assets

379,658.00

399,600

Notes payable

59,400

64,800

Operating expenses (excl. depr.)

50,400

64,454.00

Retained earnings

122,400

136,800

Sales

255,600

337,725.00

Taxes

9,900

18,959.00

What is the current year's return on equity (ROE)?

Solutions

Expert Solution

Return on assets is calculated by using the below formula:

= Net Income / Average total assets

Net Income = Sales - COGS - Depreciation - interest expense - operating expenses - taxes

= 337,725 - 175,742 - 22,788 - 16,458 - 64,454 - 18,959

= 39,324

Total Assets = Total Liabilities + Equity

Total Assets of prior year = Accounts payable + Accruals + Additional paid in capital + Common stock @ par value + Long term debt + Notes payable + Retained Earnings

= 41,400 + 16,200 + 200,000 + 37,600 + 135,000 + 59,400 + 122,400

= 612,000

Hence the total assets of prior year are 612,000

Total Assets of current year = Accounts payable + Accruals + Additional paid in capital + Common stock @ par value + Long term debt + Notes payable + Retained Earnings

= 45,000 + 13,500 + 216,660 + 42,000 + 138,348 + 64,800 + 136,800

= 657,108

Hence the total assets of current year are 658,656

So the average total assets is

= (612,000 + 657,108) / 2

= 634,554

So the return on assets will be

= Net Income / Average total assets

= 39,324 / 634,554

= 0.0620 or 6.20% Approximately

Feel free to ask in case of any query relating to this question

jeff jeffy answered 2 months ago
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