Company X's ROE Calculation

What is the company's Return on Equity (ROE)?

Company X has $45 billion in total debts and $118 billion in total assets. The company has $8.9 billion in net income. What is the company's ROE?

a) 7.74%

b) 13.85%

c) 12.19%

d) 19.78%

Answer:

The company's Return on Equity (ROE) is 12.19%.

The Return on Equity (ROE) is a key financial ratio that measures a company's profitability and efficiency in generating profits from the shareholders' investments. It indicates how well a company is utilizing its equity to generate profits.

To calculate the ROE, we first need to determine the shareholders' equity, which is the difference between total assets and total debts. In this case:

Total debts = $45 billion

Total assets = $118 billion

Net income = $8.9 billion

Shareholders' equity = Total assets - Total debts

Shareholders' equity = $118 billion - $45 billion

Shareholders' equity = $73 billion

Now, we can calculate the ROE by dividing the net income by the shareholders' equity and multiplying by 100:

ROE = ($8.9 billion / $73 billion) * 100

ROE ≈ 12.19%

Therefore, the company's ROE is approximately 12.19%, indicating that for every dollar of shareholders' equity, the company generates 12.19 cents in profit.