At the end of 2013, Daimler AG reported stockholders’ equity of $43,363 million and total assets...

At the end of 2013, Daimler AG reported stockholders’ equity of $43,363 million and total assets of $168,618 million. Its stockholders’ equity at the end of 2012 was $39,330 million. Net income in 2013 was $8,720 million.

a. Calculate Daimler’s return on equity for 2013

b. Calculate Daimlers’ debt to equity ratio as of December 31, 2013

Solutions

Expert Solution

Return on equity or return on capital is the ratio of net income of a business during a year to its stockholders' equity during that year. It is a measure of profitability of stockholders' investments. It shows net income as percentage of shareholder equity.

ROE = Annual net income/ average stock holders’ equity

Average stock-holders equity = (beginning equity + Ending equity)/2

= (39330000000 + 43363000000)/ 2

= 82693000000/ 2

= 41346500000

Let’s put the values in the formula

ROE = 8720000000/ 41346500000

ROE = 0.2109 or 21.09%

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Debt in 2013 = asset – equity

= 168618 – 43363

= 125255 million

Debt-to-Equity ratio is the ratio of total liabilities of a business to its shareholders' equity. It is a leverage ratio and it measures the degree to which the assets of the business are financed by the debts and the shareholders' equity of a business.

Debt to equity ratio = Total liability/shareholders’ equity

Debt to equity ratio = 125255/ 43363

= 2.89

ekkarill92 answered 1 year ago

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