Financial Markets and Institutions
Financial Markets and Institutions
6th Edition
ISBN: 9780077641825
Author: SAUNDERS
Publisher: Mcgraw-Hill Course Content Delivery
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Chapter 12, Problem 10P

a)

Summary Introduction

To determine: Return on equity (ROE)

a)

Expert Solution
Check Mark

Explanation of Solution

Calculation of return on equity:

ROE=NetincomeTotalequity=$5,000$183,000$155,000=$5,000$28,000=17.86%

Therefore, return on equity is 17.86%

b)

Summary Introduction

To determine: Return on assets (ROA).

b)

Expert Solution
Check Mark

Explanation of Solution

Calculation of ROA:

ROA=NetincomeTotalassets=$5,000$183,000=2.73%

Therefore, return on assets is 2.73%

c)

Summary Introduction

To determine: Asset utilization.

c)

Expert Solution
Check Mark

Explanation of Solution

Calculation of asset utilization:

Assetutilization=Interestincome+non-interestincomeTotalassets=$20,000+$2,000$183,000=12.02%

Therefore, asset utilization is 12.02%

d)

Summary Introduction

To determine: Equity multiplier.

d)

Expert Solution
Check Mark

Explanation of Solution

Calculation of equity multiplier:

Equity multiplier=TotalassetsTotalshareholder'sequity=$183,000($12,000+$4,000+$12,000)=6.54X

Therefore, equity multiplier is 6.54X

e)

Summary Introduction

To determine: Profit margin.

e)

Expert Solution
Check Mark

Explanation of Solution

Calculation of profit margin:

Profit margin=Net incomeSales=$5,000$20,000+$2,000=22.73%

Therefore, profit margin is 22.73%

f)

Summary Introduction

To determine: Interest expense ratio.

f)

Expert Solution
Check Mark

Explanation of Solution

Calculation of interest expense ratio:

Interest expense ratio=EBITTotal Interestexpense=$11,000($20,000+$2,000)=9.09%

Therefore, interest expense ratio is 9.09%

g)

Summary Introduction

To determine: Provision for loan loss ratio.

g)

Expert Solution
Check Mark

Explanation of Solution

Calculation of provision for loan loss ratio:

Provision for loan loss ratio=ProvisonforloansNet-charge offs=$2,000$20,000+$2,000=9.09%

Therefore, provision for loan loss ratio is 9.09%

h)

Summary Introduction

To determine: Non-interest expense ratio.

h)

Expert Solution
Check Mark

Explanation of Solution

Calculation of non-interest expense ratio:

Non-interest expense ratio=Non-interest expenseInterestincome+non-interestincome=$1,000$20,000+$2,000=4.55%

Therefore, non-interest expense ratio is 4.55%

i)

Summary Introduction

To determine: Tax ratio.

i)

Expert Solution
Check Mark

Explanation of Solution

Calculation of tax ratio:

Taxratio=TaxesNet  income=$3,000$20,000+$2,000=13.64%

Therefore, tax ratio is 13.64%

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Financial ratio analysis; Author: The Finance Storyteller;https://www.youtube.com/watch?v=MTq7HuvoGck;License: Standard Youtube License