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During the year, Squid Roe Inc.'s revenues were $200,000 and its net income was $60,000. It had not preferred shares, and its stockholders' equity and total assets were $380,000 and $780,000 at the beginning of the year and $420,000 and $900,000 at year-end, respectively. ROE (rounded to the nearest tenth of a percent) equals ______.

Respuesta :

Squid Roe Inc.'s ROE is 0.15.

Return on equity is an example of a profitability ratio. Profitability ratios measure the ability of a firm to generate profits from its asset.  

Return on equity = net income / average total equity

Net income = $60,000

Average total equity = (beginning + end of the year equity) / 2

($380,000 + 420,000) / 2 = $400,000

ROE = $60,000 / $400,000 = 0.15

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