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Windswept, Inc. 2017 Income Statement ($ in millions) Net sales $ 8,700 Cost of goods sold...

Windswept, Inc.
2017 Income Statement
($ in millions)
Net sales $ 8,700
Cost of goods sold 7,340
Depreciation 405
Earnings before interest and taxes $ 955
Interest paid 82
Taxable income $ 873
Taxes 306
Net income $ 567

  

Windswept, Inc.
2016 and 2017 Balance Sheets
($ in millions)
2016 2017 2016 2017
Cash $ 150 $ 185 Accounts payable $ 1,180 $ 1,260
Accounts rec. 920 730 Long-term debt 1,000 1,265
Inventory 1,520 1,550 Common stock 3,210 2,900
Total $ 2,590 $ 2,465 Retained earnings 460 710
Net fixed assets 3,260 3,670
Total assets $ 5,850 $ 6,135 Total liab. & equity $ 5,850 $ 6,135


What is the return on equity for 2017?

Solutions

Expert Solution

Return on equity can be calculated by either using the stockholders equity for 2017 or by considering the average stockholder equity. Both methods are correct and it depends what the instructor prefers

Using stockholder equity for 2017:

= Net income / Stockholder equity for 2017

= 567 / (2900 + 710)

= 15.70%

Using average stockholder equity

Average stockholder equity = ((3210 + 460) + (2900 + 710))/2

= 3640

ROE = 567/ 3640

= 15.58%

jeff jeffy answered 2 years ago
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