Question

S&J Plumbing, Inc.'s 2010 income statement shows a net profit before tax of $468, whereas the...

S&J Plumbing, Inc.'s 2010 income statement shows a net profit before tax of $468, whereas the balance sheet that the company's equity for the fiscal year-end 2010 is $1,746.


Calculate the company's return on equity and explain whether the managers are providing a good return on the capital provided by the company’s shareholders.


Diagram and explain the operating cycle of a service company.


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Answer #1

Return on equity=net income/shareholders’ equity
$ 468/$1,746=0.268 or 26.8%

Yes, the managers are providing good returns as compared to the average market cost of the availability of funds.

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