Wyatt Oil has a net profit margin of 4.0%,a total asset turnover of 2.2,total assets of $525 million,and a book value of equity of $220 million.Wyatt Oil's current return-on-equity (ROE)is closest to:
A)8.8%.
B)9.5%.
C)21.0%.
D)22.8%.

Question

Quizplus · Accepted Answer

ROE is calculated as (Net Profit Margin) x (Total Asset Turnover) x (Equity Multiplier). The Equity Multiplier is Total Assets divided by Book Value of Equity. So, ROE = 4.0% x 2.2 x (525/220) = 21.0%.

Wyatt Oil Has a Net Profit Margin of 4