Dew Point Dynamite, Inc. generated a 1.23 total asset turnover in its latest fiscal year on assets of $2,112,077. The firm has total liabilities of $950,997. The firm's net profit margin was 10.3%. What is Dew Point's return on equity? Round to the nearest 0.1%.
A) 23.1%
B) 12.6%
C) 5.5%
D) 18.2%

Question

Quizplus · Accepted Answer

23.1%To calculate the Return on Equity (ROE), we first need to find the net income and the equity. The total asset turnover is given as 1.23, which is calculated as Sales/Total Assets. Therefore, Sales = Total Asset Turnover * Total Assets = 1.23 * $2,112,077 = $2,597,854.61. The net profit margin is 10.3%, so Net Income = Sales * Net Profit Margin = $2,597,854.61 * 10.3% = $267,579.02. Equity is calculated as Total Assets - Total Liabilities = $2,112,077 - $950,997 = $1,161,080. The ROE is then Net Income / Equity = $267,579.02 / $1,161,080 = 23.05%, which rounds to 23.1%.