Shelton, Inc., has sales of $18 million, total assets of $16.5 million, and total debt of $9.4 million. Assume the profit margin is 8 percent. Required:a. What is the company's net income?b. What is the company's ROA?c. What is the company's ROE?

a.

Net Income = $1,440,000 or $1.44 million

b.

ROA = 0.0873 or 8.73%

c.

ROE = 0.2028 or 20.28%

Explanation:

a.

The net income of the company can be calculated by multiplying the profit margin by the value of total sales.

Net Income = 18,000,000 * 0.08  

Net Income = $1,440,000 or $1.44 million

b.

The return of assets or ROA is the value of Net Income expressed as a percentage of Total Assets. Thus, the formula for ROA is,

ROA = Net Income / Total Assets

ROA = 1.44 / 16.5

ROA = 0.08727272 rounded off to 0.0873 or 8.73%

c.

The ROE or return on equity is the profit or net income expressed as a percentage of total equity.

ROE = Net Income / Shareholders' Equity

First we need to calculate the value of total equity using the basic accounting equation.

Total Assets = Total Liabilities + Total Equity

16.5 = 9.4 + Total Equity

16.5 - 9.4 = Total Equity

Total Equity = $7.1 million

ROE = 1.44 / 7.1

ROE = 0.20281 or 20.281% rounded off to 0.2028 or 20.28%

answer; i believe both technician (a) and (b) are correct; /// good luck

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