Profitability Ratios:
Tanaka Corporation’s balance sheet indicates the following balances as of December 31, 2013.
| Cash | $ 70,000 |
| Accounts receivable | 74,600 |
| Inventory | 55,000 |
| Property, plant, and equipment | 500,000 |
| Accounts payable | 75,000 |
| Bonds payable (due in 2017) | 100,000 |
| Common stock (12/31/2012) | 275,000 |
| Common stock (12/31/2013) | 325,000 |
| Retained earnings (12/31/2012) | 200,000 |
| Retained earnings (12/31/2013) | 260,000 |
Required:
If Tanaka’s 2013 net income is $74,600, determine its return on equity. Round your answer to two decimal places.
Answer : return on equity = 9.07%
Working notes for the above answer is as under
Return on Eqity == Net Income/ Share holders equity
Here we have been provided that,
Tanaka’s 2013 net income is $74,600
Common stock (12/31/2012) =275000+200000=475000
Common stock (12/31/2013) = $ 325000+260000=585000
Anerage Shareholder’s Equity
= 475000+585000/2
=822500
Now we will calculate Return on equity
=Net Income/ Avg.Share holders equity
=74600/822500
=0.0907
=9.07%
