If a company's net income is $16 million and its owner's equity is $10 million, what is its return on equity?

If a company's net income is $16 million and its owner's equity is $10 million, what is its return on equity?

• A. 100%
• B. 160%
• C. 80%
• D. 200%

Answer: (B)

To calculate return on equity (ROE), you use the formula: ROE = (Net Income / Owner's Equity) × 100% In this case, the net income is $16 million, and the owner's equity is $10 million. Plugging these values into the formula gives: ROE = (16 million / 10 million) × 100% ROE = (1.6) × 100% ROE = 160% This means that for every dollar of owner's equity, the company generates $1.60 in profit, which equates to a return of 160%. High ROE values indicate efficient use of equity capital to generate profits, reflecting positively on the company's financial health and management effectiveness.

To calculate return on equity (ROE), you use the formula:

ROE = (Net Income / Owner's Equity) × 100%

In this case, the net income is $16 million, and the owner's equity is $10 million. Plugging these values into the formula gives:

ROE = (16 million / 10 million) × 100%

ROE = (1.6) × 100%

ROE = 160%

This means that for every dollar of owner's equity, the company generates $1.60 in profit, which equates to a return of 160%. High ROE values indicate efficient use of equity capital to generate profits, reflecting positively on the company's financial health and management effectiveness.