Firm Y has issued 500 million shares of stock at $1 par value and $200 millino in additional paid in capital. Retained earnings are $5.6 billion. What is the return on equity if net income if net income is $1.1 billion?

Return on equity = 17.46%

Explanation:

DATA:

Issued share capital = $500m

Additional Paid-in capital = $200 million

Retained Earnings = $5.6 billion

Net Income = $1.1 billion

Return on Equity = ?

Solution

Return on equity can be calculated by dividing net income in total shareholder's equity

NOTE: ALL THE WORKINGS ARE IN 1000's

Return on equity = Net Income / Shareholder's Equity

Return on equity = 1,100,000 / (500,000 + 200,000 +5,600,000)

Return on equity = $1,100,000/6,300,000

Return on equity = 17.46%

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