Question

Stroud Sporting Gear Inc. has a net profit margin of 9%, a total asset turnover of 2.4, total assets of $225 million, and total equity of $120 million. What is the company’s return on equity?

Answer 1

Solution:
	Company’s return on equity	40.50	%
Working Notes:
	Total asset turnover = 2.4
	Net sales /Total assets = 2.4
	Net sales /$225 million = 2.4
	Net Sales = 2.4 x $225 million
	Net Sales = $540 million
	Net Income = Net sales x Net profit margin
	Net Income = $540 million x 9%
	Net Income = $48.6 million
	Company’s return on equity =Net income /Total Equity
	Company’s return on equity =$48.6 million /$120 million
	Company’s return on equity =0.4050
	Company’s return on equity =40.50 %
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