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Firm A and Firm B have debt-total asset ratios of 34 percent and 24 percent and returns on total assets of 10 percent and 15 percent, respectively. What is the return on equity for Firm A and Firm B

Sagot :

Answer:

3.4%

3.6%

Explanation:

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 the stockholders' equity = net income / total equity

ROE = return on asset x leverage

Firm A = 0.34 x 0.1 = 3.4%

Firm B = 0.24 X 0.15 = 3.6%

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