what is the return on equity? course hero

What is return on equity (R/E)?

Aug 05, 2016 · What is the firm's return on equity? (Select the best choice.) 1) The firm's return on equity is the same as the net profit margin, 9.4%. 2) The firm's return on equity is the sum of the operating profit margin and the net profit margin, 25.5%. 3) There is not enough information to answer this question.

How to increase the return on equity of a company?

Jun 19, 2017 · What is the firm's return on equity? (Select the best choice.) 1) The firm's return on equity is the same as the net profit margin, 9.4%. 2) The firm's return on equity is the sum of the operating profit margin and the net profit margin, 25.5%. 3) There is not enough information to answer this question.

What is the net return on equity after raising prices?

Compute the return on equity (ROE), using the equation as shown below: ROE = Net income ÷ Shareholder's equity. = $55,000 ÷ $75,000. = 73.3%. Hence, the ROE is 73.3%. Comment: Return on equity = Return on equity = = 73.3% Diff: 2 Section: 3.2 AACSB: Analytical Skills Learning Outcome: F-02: Analyze the major types of financial statements 6. 10) Sales for a firm are …

Why does the second company have a higher ROE?

Mar 23, 2017 · What is the return on equity for 2009 Use 2009 values A 1529 percent B 1646. What is the return on equity for 2009 use 2009 values. School Hashemite University; Course Title FINANCE 107; Uploaded By abd100sh; Pages 89 Ratings 100% (3) 3 out of 3 people found this document helpful;

What is return on equity means?

Return on equity (ROE) is the measure of a company's net income divided by its shareholders' equity. ROE is a gauge of a corporation's profitability and how efficiently it generates those profits.

What does return on equity ROE measure Why is it important to consider ROE and not just net income in dollar terms?

Return on equity (ROE) is an important financial metric that investors can use to determine how efficient management is at utilizing equity financing provided by shareholders. It compares the net income to the equity of the firm.

What is the best return on equity?

ROEs of 15–20% are generally considered good. ROE is also a factor in stock valuation, in association with other financial ratios.

What is the benefit of return on equity?

Advantages of Return on Equity (ROE) It categorically outlines the percentage return earned by the equity shareholders. It helps investors in comparing the performance of different equity investments and thereby influence their future investment strategy.

How do you calculate return on equity?

To calculate RRR using the CAPM:Subtract the risk-free rate of return from the market rate of return.Multiply the above figure by the beta of the security.Add this result to the risk-free rate to determine the required rate of return.

How do you calculate return on equity on a home?

Return on equity is calculated using a formula of net income divided by shareholder's equity. In real estate, the formula is better described as cash flow after taxes divided by the sum total of initial cash investment plus any additional equity that has built up as you've made mortgage payments.

Is a higher return on equity better?

The higher a company's ROE percentage, the better. A higher percentage indicates a company is more effective at generating profit from its existing assets. Likewise, a company that sees increases in its ROE over time is likely getting more efficient.Feb 25, 2022

What is a good PE ratio for stocks?

A higher P/E ratio shows that investors are willing to pay a higher share price today because of growth expectations in the future. The average P/E for the S&P 500 has historically ranged from 13 to 15. For example, a company with a current P/E of 25, above the S&P average, trades at 25 times earnings.

Can Return on Equity be more than 100?

Summary. Clorox is able to achieve ROE over 100%. How is this possible? A DuPont analysis and comparison among its peers could shed some light.Nov 17, 2017

Can Return on Equity be manipulated?

There are two ways Return on Equity(ROE) can be manipulated. The easiest way to inflate net income is through overvaluing the assets value or ROA numbers. This is because there is no standardize Method of evaluating Asset value.

How can a company increase its return on equity?

Companies can finance themselves with debt and equity capital. By increasing the amount of debt capital relative to its equity capital, a company can increase its return on equity. We'll use a (fictional) lemonade stand as an example for how the use of debt can increase a company's return on equity. I've created financial statements ...

How does increasing profits affect return on equity?

As profits are in the numerator of the return on equity ratio , increasing profits relative to equity increases a company's return on equity. Increasing profits does not necessarily have to come from selling more product. It can also come from increasing prices of each product sold, lowering the cost of goods sold, reducing its overhead expenses, ...

How does financial leverage affect return on equity?

Financial leverage increases a company's return on equity so long as the after-tax cost of debt is lower than its return on equity. 2. Increase profit margins. As profits are in the numerator of the return on equity ratio, increasing profits relative to equity increases a company's return on equity.

Why does the second company have a higher ROE?

Thus, when you divide net income by shareholder's equity, you see that the second company has a higher ROE due to its financial leverage. Financial leverage increases a company's return on equity so long as the after-tax cost ...

How to calculate asset turnover?

Asset turnover is a measure of a company's efficiency. You can calculate it by dividing sales by the company's total assets. In general, the more sales a company produces relative to its assets, the more profitable it should be, and the higher return on equity it should earn.

Who is the Motley Fool?

Founded in 1993 in Alexandria, VA., by brothers David and Tom Gardner, The Motley Fool is a multimedia financial-services company dedicated to building the world's greatest investment community. Reaching millions of people each month through its website, books, newspaper column, radio show, television appearances, and subscription newsletter services, The Motley Fool champions shareholder values and advocates tirelessly for the individual investor. The company's name was taken from Shakespeare, whose wise fools both instructed and amused, and could speak the truth to the king -- without getting their heads lopped off.