Question

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

Answer 1

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