6 Carroll Inc has a total debt ratio of58 total debt of 3180

6. Carroll, Inc., has a total debt ratio of.58, total debt of $318,000, and net income of $39,000 What is the company\'s return on equity? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g, 32.16.) Return on equity 0%

Solution

Return on Equity = (Net Income / Shareholders Equity) * 100

Shareholders Equity = Total Assets - Total Liabilities

Calculation of Return on Equity

Step 1 - Calculation of Total Assets

Total Debt ratio or Debt ratio = Total Debt / Total Assets

Where Total Debt is $318,000

Total Debt ratio = 0.58

Therefore

0.58 = $318,000 / Total Assets

Total Assets = $318,000 / 0.58

Total Assets = $548,275.862068

Step 2 - Calculation of Shareholders Equity

Total Assets = $548,275.862068

Total Liabilities = $318,000 (As Debt is the only liability in the question)

Shareholders Equity = Total Assets - Total Liabilities

Shareholders Equity = $548,275.862068 -  $318,000

Shareholders Equity = $230,275.862068

Step 3 - Calculation of Return on Equity

Net Income = $39,000

Shareholders Equity = $230,275.862068

Return on Equity = Net Income / Shareholders Equity

Return on Equity = ($39,000 / $230,275.862068) * 100

Return on Equity = 16.94% (rounded two decimal places)