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A company’s net income after tax is $50,000. Shareholder’s equity of the company is $200,000 and its long-term liability is $30,000. What is the company’s return on equity? A. 15% B. 20% C. 25% D. 30% E. 35%

Respuesta :

Answer: C.25%.

We use the following formula to compute the Return on Equity (RoE)

[tex]Return on Equity = \frac{Net Income}{Shareholder's equity} *100[/tex]

Substituting the values we get,

[tex]Return on Equity = \frac{50000}{200000} *100[/tex]

[tex]Return on Equity = \frac{1}{4} *100[/tex]

[tex]Return on Equity = 25%[/tex]

RoE is a measure of a company's financial performance. Generally, the higher the value, the better the company's performance.

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