Copyright

If UARE, Inc. has sales of 3700, total assets of 5000, a debt to equity ratio of 1.2 and a return...

Question:

If UARE, Inc. has sales of 3700, total assets of 5000, a debt to equity ratio of 1.2 and a return on equity of 15 percent, what is UARE's net income?

a. 555.00

b. 340.91

c. 186.69

Ratios:

Ratios function as a powerful analysis tool that analyzes the financial and non-financial aspects of a business. Ratio utilization is valuable in assessing trends such as liquidity, leverage, profitability, and efficiency.

Answer and Explanation:


The answer is b. $340.91


To begin the problem, you must first determine the remaining portion of the balance sheet. A debt worth ratio of 1.2 reports that total liabilities are 1.2 times of total equity, so liabilities are slightly higher than total equity. With that assumption multiply total assets by 55% to determine liabilities. Subtract total assets from total liabilities to determine total equity. Test the debt to worth ratio for accuracy ($2,750 total liabilities / $2,250 total equity = 1.2).


Total Assets $5,000
Total Liabilities $2,750
Total Equity $2,250


Next plug shareholder's equity of $2,250 and the required result of 15% into the return on equity formula.


  • ROE 15% = Net Income x / $2,250 Shareholders Equity


Solve for net income x utilizing the answers offered.


  • Net income x = $340.91

Learn more about this topic:

Loading...
Ratios and Proportions: Definition and Examples

from Geometry: High School

Chapter 7 / Lesson 1
286K

Related to this Question

Explore our homework questions and answers library