Return on equity (ROE)

Question

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Answer 1

Question

Chapter 12, Problem 11P

a)

Summary Introduction

To determine: Return on equity (ROE)

a)

Expert Solution

Explanation of Solution

Calculation of return on equity:

ROE=Net incomeTotal equity=$2,275($5,000+$4,000+$6,125)=$2,275$15,125=15.04%

Therefore, return on equity is 15.04%

b)

Summary Introduction

To determine: Return on assets (ROA).

b)

Expert Solution

Explanation of Solution

Calculation of ROA:

ROA=Net incomeTotal assets=$2,275$137,500=1.65%

Therefore, return on assets is 1.65%

c)

Summary Introduction

To determine: Asset utilization.

c)

Expert Solution

Explanation of Solution

Calculation of asset utilization:

Asset utilization=Interest income+non-interest incomeTotal assets=$8,623+$950$137,500=6.96%

Therefore, asset utilization is 6.96%

d)

Summary Introduction

To determine: Equity multiplier.

d)

Expert Solution

Explanation of Solution

Calculation of equity multiplier:

Equity multiplier=Total assetsTotal shareholder's equity=$137,500($5,000+$4,000+$6,125)=9.09X

Therefore, equity multiplier is 9.09X

e)

Summary Introduction

To determine: Profit margin.

e)

Expert Solution

Explanation of Solution

Calculation of profit margin:

Profit margin=Net incomeSales=$2,275$8,623+$950=23.76%

Therefore, profit margin is 23.76%

f)

Summary Introduction

To determine: Interest expense ratio.

f)

Expert Solution

Explanation of Solution

Calculation of interest expense ratio:

Interest expense ratio=EBITTotal Interest expense=$4,158($8,623+$950)=43.43%

Therefore, interest expense ratio is 43.43%

g)

Summary Introduction

To determine: Provision for loan loss ratio.

g)

Expert Solution

Explanation of Solution

Calculation of provision for loan loss ratio:

Provision for loan loss ratio=Provison for loansNet-charge offs=$200$8,623+$950=2.09%

Therefore, provision for loan loss ratio is 2.09%

h)

Summary Introduction

To determine: Non-interest expense ratio.

h)

Expert Solution

Explanation of Solution

Calculation of non-interest expense ratio:

Non-interest expense ratio=Non-interest expenseInterest income+non-interest income=$1,720$8,623+$950=17.97%

Therefore, non-interest expense ratio is 17.97%

i)

Summary Introduction

To determine: Tax ratio.

i)

Expert Solution

Explanation of Solution

Calculation of tax ratio:

Tax ratio=TaxesNet income=$1,220$8,623+$950=12.74%

Therefore, tax ratio is 12.74%

j)

Summary Introduction

To determine: Overhead efficiency.

j)

Expert Solution

Explanation of Solution

Calculation of overhead efficiency:

Non-interest expense ratio=ExpensesRevenue=$950$1,720=55.23%

Therefore, non-interest expense ratio is 55.23%

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3 years ago, you invested $9,200. In 3 years, you expect to have $14,167. If you expect to earn the same annual return after 3 years from today as the annual return implied from the past and expected values given in the problem, then in how many years from today do you expect to have $28,798?

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Ends Feb 2 Discuss and explain in detail the "Purpose of Financial Analysis" as well as the two main way we use Financial Ratios to do this.

Answer 2

Question

Chapter 12, Problem 11P

a)

Summary Introduction

To determine: Return on equity (ROE)

a)

Expert Solution

Explanation of Solution

Calculation of return on equity:

ROE=Net incomeTotal equity=$2,275($5,000+$4,000+$6,125)=$2,275$15,125=15.04%

Therefore, return on equity is 15.04%

b)

Summary Introduction

To determine: Return on assets (ROA).

b)

Expert Solution

Explanation of Solution

Calculation of ROA:

ROA=Net incomeTotal assets=$2,275$137,500=1.65%

Therefore, return on assets is 1.65%

c)

Summary Introduction

To determine: Asset utilization.

c)

Expert Solution

Explanation of Solution

Calculation of asset utilization:

Asset utilization=Interest income+non-interest incomeTotal assets=$8,623+$950$137,500=6.96%

Therefore, asset utilization is 6.96%

d)

Summary Introduction

To determine: Equity multiplier.

d)

Expert Solution

Explanation of Solution

Calculation of equity multiplier:

Equity multiplier=Total assetsTotal shareholder's equity=$137,500($5,000+$4,000+$6,125)=9.09X

Therefore, equity multiplier is 9.09X

e)

Summary Introduction

To determine: Profit margin.

e)

Expert Solution

Explanation of Solution

Calculation of profit margin:

Profit margin=Net incomeSales=$2,275$8,623+$950=23.76%

Therefore, profit margin is 23.76%

f)

Summary Introduction

To determine: Interest expense ratio.

f)

Expert Solution

Explanation of Solution

Calculation of interest expense ratio:

Interest expense ratio=EBITTotal Interest expense=$4,158($8,623+$950)=43.43%

Therefore, interest expense ratio is 43.43%

g)

Summary Introduction

To determine: Provision for loan loss ratio.

g)

Expert Solution

Explanation of Solution

Calculation of provision for loan loss ratio:

Provision for loan loss ratio=Provison for loansNet-charge offs=$200$8,623+$950=2.09%

Therefore, provision for loan loss ratio is 2.09%

h)

Summary Introduction

To determine: Non-interest expense ratio.

h)

Expert Solution

Explanation of Solution

Calculation of non-interest expense ratio:

Non-interest expense ratio=Non-interest expenseInterest income+non-interest income=$1,720$8,623+$950=17.97%

Therefore, non-interest expense ratio is 17.97%

i)

Summary Introduction

To determine: Tax ratio.

i)

Expert Solution

Explanation of Solution

Calculation of tax ratio:

Tax ratio=TaxesNet income=$1,220$8,623+$950=12.74%

Therefore, tax ratio is 12.74%

j)

Summary Introduction

To determine: Overhead efficiency.

j)

Expert Solution

Explanation of Solution

Calculation of overhead efficiency:

Non-interest expense ratio=ExpensesRevenue=$950$1,720=55.23%

Therefore, non-interest expense ratio is 55.23%

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Answer 3

Question

Chapter 12, Problem 11P

a)

Summary Introduction

To determine: Return on equity (ROE)

a)

Expert Solution

Explanation of Solution

Calculation of return on equity:

ROE=Net incomeTotal equity=$2,275($5,000+$4,000+$6,125)=$2,275$15,125=15.04%

Therefore, return on equity is 15.04%

b)

Summary Introduction

To determine: Return on assets (ROA).

b)

Expert Solution

Explanation of Solution

Calculation of ROA:

ROA=Net incomeTotal assets=$2,275$137,500=1.65%

Therefore, return on assets is 1.65%

c)

Summary Introduction

To determine: Asset utilization.

c)

Expert Solution

Explanation of Solution

Calculation of asset utilization:

Asset utilization=Interest income+non-interest incomeTotal assets=$8,623+$950$137,500=6.96%

Therefore, asset utilization is 6.96%

d)

Summary Introduction

To determine: Equity multiplier.

d)

Expert Solution

Explanation of Solution

Calculation of equity multiplier:

Equity multiplier=Total assetsTotal shareholder's equity=$137,500($5,000+$4,000+$6,125)=9.09X

Therefore, equity multiplier is 9.09X

e)

Summary Introduction

To determine: Profit margin.

e)

Expert Solution

Explanation of Solution

Calculation of profit margin:

Profit margin=Net incomeSales=$2,275$8,623+$950=23.76%

Therefore, profit margin is 23.76%

f)

Summary Introduction

To determine: Interest expense ratio.

f)

Expert Solution

Explanation of Solution

Calculation of interest expense ratio:

Interest expense ratio=EBITTotal Interest expense=$4,158($8,623+$950)=43.43%

Therefore, interest expense ratio is 43.43%

g)

Summary Introduction

To determine: Provision for loan loss ratio.

g)

Expert Solution

Explanation of Solution

Calculation of provision for loan loss ratio:

Provision for loan loss ratio=Provison for loansNet-charge offs=$200$8,623+$950=2.09%

Therefore, provision for loan loss ratio is 2.09%

h)

Summary Introduction

To determine: Non-interest expense ratio.

h)

Expert Solution

Explanation of Solution

Calculation of non-interest expense ratio:

Non-interest expense ratio=Non-interest expenseInterest income+non-interest income=$1,720$8,623+$950=17.97%

Therefore, non-interest expense ratio is 17.97%

i)

Summary Introduction

To determine: Tax ratio.

i)

Expert Solution

Explanation of Solution

Calculation of tax ratio:

Tax ratio=TaxesNet income=$1,220$8,623+$950=12.74%

Therefore, tax ratio is 12.74%

j)

Summary Introduction

To determine: Overhead efficiency.

j)

Expert Solution

Explanation of Solution

Calculation of overhead efficiency:

Non-interest expense ratio=ExpensesRevenue=$950$1,720=55.23%

Therefore, non-interest expense ratio is 55.23%

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Answer 4

Question

Chapter 12, Problem 11P

a)

Summary Introduction

To determine: Return on equity (ROE)

a)

Expert Solution

Explanation of Solution

Calculation of return on equity:

ROE=Net incomeTotal equity=$2,275($5,000+$4,000+$6,125)=$2,275$15,125=15.04%

Therefore, return on equity is 15.04%

b)

Summary Introduction

To determine: Return on assets (ROA).

b)

Expert Solution

Explanation of Solution

Calculation of ROA:

ROA=Net incomeTotal assets=$2,275$137,500=1.65%

Therefore, return on assets is 1.65%

c)

Summary Introduction

To determine: Asset utilization.

c)

Expert Solution

Explanation of Solution

Calculation of asset utilization:

Asset utilization=Interest income+non-interest incomeTotal assets=$8,623+$950$137,500=6.96%

Therefore, asset utilization is 6.96%

d)

Summary Introduction

To determine: Equity multiplier.

d)

Expert Solution

Explanation of Solution

Calculation of equity multiplier:

Equity multiplier=Total assetsTotal shareholder's equity=$137,500($5,000+$4,000+$6,125)=9.09X

Therefore, equity multiplier is 9.09X

e)

Summary Introduction

To determine: Profit margin.

e)

Expert Solution

Explanation of Solution

Calculation of profit margin:

Profit margin=Net incomeSales=$2,275$8,623+$950=23.76%

Therefore, profit margin is 23.76%

f)

Summary Introduction

To determine: Interest expense ratio.

f)

Expert Solution

Explanation of Solution

Calculation of interest expense ratio:

Interest expense ratio=EBITTotal Interest expense=$4,158($8,623+$950)=43.43%

Therefore, interest expense ratio is 43.43%

g)

Summary Introduction

To determine: Provision for loan loss ratio.

g)

Expert Solution

Explanation of Solution

Calculation of provision for loan loss ratio:

Provision for loan loss ratio=Provison for loansNet-charge offs=$200$8,623+$950=2.09%

Therefore, provision for loan loss ratio is 2.09%

h)

Summary Introduction

To determine: Non-interest expense ratio.

h)

Expert Solution

Explanation of Solution

Calculation of non-interest expense ratio:

Non-interest expense ratio=Non-interest expenseInterest income+non-interest income=$1,720$8,623+$950=17.97%

Therefore, non-interest expense ratio is 17.97%

i)

Summary Introduction

To determine: Tax ratio.

i)

Expert Solution

Explanation of Solution

Calculation of tax ratio:

Tax ratio=TaxesNet income=$1,220$8,623+$950=12.74%

Therefore, tax ratio is 12.74%

j)

Summary Introduction

To determine: Overhead efficiency.

j)

Expert Solution

Explanation of Solution

Calculation of overhead efficiency:

Non-interest expense ratio=ExpensesRevenue=$950$1,720=55.23%

Therefore, non-interest expense ratio is 55.23%

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Answer 5

Chapter 12, Problem 11P

a)

Summary Introduction

To determine: Return on equity (ROE)

a)

Expert Solution

Explanation of Solution

Calculation of return on equity:

ROE=Net incomeTotal equity=$2,275($5,000+$4,000+$6,125)=$2,275$15,125=15.04%

Therefore, return on equity is 15.04%

b)

Summary Introduction

To determine: Return on assets (ROA).

b)

Expert Solution

Explanation of Solution

Calculation of ROA:

ROA=Net incomeTotal assets=$2,275$137,500=1.65%

Therefore, return on assets is 1.65%

c)

Summary Introduction

To determine: Asset utilization.

c)

Expert Solution

Explanation of Solution

Calculation of asset utilization:

Asset utilization=Interest income+non-interest incomeTotal assets=$8,623+$950$137,500=6.96%

Therefore, asset utilization is 6.96%

d)

Summary Introduction

To determine: Equity multiplier.

d)

Expert Solution

Explanation of Solution

Calculation of equity multiplier:

Equity multiplier=Total assetsTotal shareholder's equity=$137,500($5,000+$4,000+$6,125)=9.09X

Therefore, equity multiplier is 9.09X

e)

Summary Introduction

To determine: Profit margin.

e)

Expert Solution

Explanation of Solution

Calculation of profit margin:

Profit margin=Net incomeSales=$2,275$8,623+$950=23.76%

Therefore, profit margin is 23.76%

f)

Summary Introduction

To determine: Interest expense ratio.

f)

Expert Solution

Explanation of Solution

Calculation of interest expense ratio:

Interest expense ratio=EBITTotal Interest expense=$4,158($8,623+$950)=43.43%

Therefore, interest expense ratio is 43.43%

g)

Summary Introduction

To determine: Provision for loan loss ratio.

g)

Expert Solution

Explanation of Solution

Calculation of provision for loan loss ratio:

Provision for loan loss ratio=Provison for loansNet-charge offs=$200$8,623+$950=2.09%

Therefore, provision for loan loss ratio is 2.09%

h)

Summary Introduction

To determine: Non-interest expense ratio.

h)

Expert Solution

Explanation of Solution

Calculation of non-interest expense ratio:

Non-interest expense ratio=Non-interest expenseInterest income+non-interest income=$1,720$8,623+$950=17.97%

Therefore, non-interest expense ratio is 17.97%

i)

Summary Introduction

To determine: Tax ratio.

i)

Expert Solution

Explanation of Solution

Calculation of tax ratio:

Tax ratio=TaxesNet income=$1,220$8,623+$950=12.74%

Therefore, tax ratio is 12.74%

j)

Summary Introduction

To determine: Overhead efficiency.

j)

Expert Solution

Explanation of Solution

Calculation of overhead efficiency:

Non-interest expense ratio=ExpensesRevenue=$950$1,720=55.23%

Therefore, non-interest expense ratio is 55.23%

Answer 6

Chapter 12, Problem 11P

a)

Summary Introduction

To determine: Return on equity (ROE)

a)

Expert Solution

Explanation of Solution

Calculation of return on equity:

ROE=Net incomeTotal equity=$2,275($5,000+$4,000+$6,125)=$2,275$15,125=15.04%

Therefore, return on equity is 15.04%

Answer 7

Chapter 12, Problem 11P

a)

Summary Introduction

To determine: Return on equity (ROE)

Answer 8

a)

Expert Solution

Explanation of Solution

Calculation of return on equity:

ROE=Net incomeTotal equity=$2,275($5,000+$4,000+$6,125)=$2,275$15,125=15.04%

Therefore, return on equity is 15.04%

Answer 9

a)

Expert Solution

Answer 10

a)

Expert Solution

Answer 11

Expert Solution

Answer 12

b)

Summary Introduction

To determine: Return on assets (ROA).

b)

Expert Solution

Explanation of Solution

Calculation of ROA:

ROA=Net incomeTotal assets=$2,275$137,500=1.65%

Therefore, return on assets is 1.65%

Answer 13

b)

Summary Introduction

To determine: Return on assets (ROA).

Answer 14

b)

Expert Solution

Explanation of Solution

Calculation of ROA:

ROA=Net incomeTotal assets=$2,275$137,500=1.65%

Therefore, return on assets is 1.65%

Answer 15

b)

Expert Solution

Answer 16

b)

Expert Solution

Answer 17

Expert Solution

Answer 18

c)

Summary Introduction

To determine: Asset utilization.

c)

Expert Solution

Explanation of Solution

Calculation of asset utilization:

Asset utilization=Interest income+non-interest incomeTotal assets=$8,623+$950$137,500=6.96%

Therefore, asset utilization is 6.96%

Answer 19

c)

Summary Introduction

To determine: Asset utilization.

Answer 20

c)

Expert Solution

Explanation of Solution

Calculation of asset utilization:

Asset utilization=Interest income+non-interest incomeTotal assets=$8,623+$950$137,500=6.96%

Therefore, asset utilization is 6.96%

Answer 21

c)

Expert Solution

Answer 22

c)

Expert Solution

Answer 23

Expert Solution

Answer 24

d)

Summary Introduction

To determine: Equity multiplier.

d)

Expert Solution

Explanation of Solution

Calculation of equity multiplier:

Equity multiplier=Total assetsTotal shareholder's equity=$137,500($5,000+$4,000+$6,125)=9.09X

Therefore, equity multiplier is 9.09X

Answer 25

d)

Summary Introduction

To determine: Equity multiplier.

Answer 26

d)

Expert Solution

Explanation of Solution

Calculation of equity multiplier:

Equity multiplier=Total assetsTotal shareholder's equity=$137,500($5,000+$4,000+$6,125)=9.09X

Therefore, equity multiplier is 9.09X

Answer 27

d)

Expert Solution

Answer 28

d)

Expert Solution

Answer 29

Expert Solution

Answer 30

e)

Summary Introduction

To determine: Profit margin.

e)

Expert Solution

Explanation of Solution

Calculation of profit margin:

Profit margin=Net incomeSales=$2,275$8,623+$950=23.76%

Therefore, profit margin is 23.76%

Answer 31

e)

Summary Introduction

To determine: Profit margin.

Answer 32

e)

Expert Solution

Explanation of Solution

Calculation of profit margin:

Profit margin=Net incomeSales=$2,275$8,623+$950=23.76%

Therefore, profit margin is 23.76%

Answer 33

e)

Expert Solution

Answer 34

e)

Expert Solution

Answer 35

Expert Solution

Answer 36

f)

Summary Introduction

To determine: Interest expense ratio.

f)

Expert Solution

Explanation of Solution

Calculation of interest expense ratio:

Interest expense ratio=EBITTotal Interest expense=$4,158($8,623+$950)=43.43%

Therefore, interest expense ratio is 43.43%

Answer 37

f)

Summary Introduction

To determine: Interest expense ratio.

Answer 38

f)

Expert Solution

Explanation of Solution

Calculation of interest expense ratio:

Interest expense ratio=EBITTotal Interest expense=$4,158($8,623+$950)=43.43%

Therefore, interest expense ratio is 43.43%

Answer 39

f)

Expert Solution

Answer 40

f)

Expert Solution

Answer 41

Expert Solution

Answer 42

g)

Summary Introduction

To determine: Provision for loan loss ratio.

g)

Expert Solution

Explanation of Solution

Calculation of provision for loan loss ratio:

Provision for loan loss ratio=Provison for loansNet-charge offs=$200$8,623+$950=2.09%

Therefore, provision for loan loss ratio is 2.09%

Answer 43

g)

Summary Introduction

To determine: Provision for loan loss ratio.

Answer 44

g)

Expert Solution

Explanation of Solution

Calculation of provision for loan loss ratio:

Provision for loan loss ratio=Provison for loansNet-charge offs=$200$8,623+$950=2.09%

Therefore, provision for loan loss ratio is 2.09%

Answer 45

g)

Expert Solution

Answer 46

g)

Expert Solution

Answer 47

Expert Solution

Answer 48

h)

Summary Introduction

To determine: Non-interest expense ratio.

h)

Expert Solution

Explanation of Solution

Calculation of non-interest expense ratio:

Non-interest expense ratio=Non-interest expenseInterest income+non-interest income=$1,720$8,623+$950=17.97%

Therefore, non-interest expense ratio is 17.97%

Answer 49

h)

Summary Introduction

To determine: Non-interest expense ratio.

Answer 50

h)

Expert Solution

Explanation of Solution

Calculation of non-interest expense ratio:

Non-interest expense ratio=Non-interest expenseInterest income+non-interest income=$1,720$8,623+$950=17.97%

Therefore, non-interest expense ratio is 17.97%

Answer 51

h)

Expert Solution

Answer 52

h)

Expert Solution

Answer 53

Expert Solution

Answer 54

i)

Summary Introduction

To determine: Tax ratio.

i)

Expert Solution

Explanation of Solution

Calculation of tax ratio:

Tax ratio=TaxesNet income=$1,220$8,623+$950=12.74%

Therefore, tax ratio is 12.74%

Answer 55

i)

Summary Introduction

To determine: Tax ratio.

Answer 56

i)

Expert Solution

Explanation of Solution

Calculation of tax ratio:

Tax ratio=TaxesNet income=$1,220$8,623+$950=12.74%

Therefore, tax ratio is 12.74%

Answer 57

i)

Expert Solution

Answer 58

i)

Expert Solution

Answer 59

Expert Solution

Answer 60

j)

Summary Introduction

To determine: Overhead efficiency.

j)

Expert Solution

Explanation of Solution

Calculation of overhead efficiency:

Non-interest expense ratio=ExpensesRevenue=$950$1,720=55.23%

Therefore, non-interest expense ratio is 55.23%

Answer 61

j)

Summary Introduction

To determine: Overhead efficiency.

Answer 62

j)

Expert Solution

Explanation of Solution

Calculation of overhead efficiency:

Non-interest expense ratio=ExpensesRevenue=$950$1,720=55.23%

Therefore, non-interest expense ratio is 55.23%

Answer 63

j)

Expert Solution

Answer 64

j)

Expert Solution

Answer 65

Expert Solution

Answer 66

Ch. 12 - Prob. 1DYU Ch. 12 - Prob. 2DYU Ch. 12 - Prob. 3DYU Ch. 12 - Prob. 4DYU Ch. 12 - Prob. 5DYU Ch. 12 - Prob. 6DYU Ch. 12 - Prob. 7DYU Ch. 12 - Prob. 8DYU Ch. 12 - Prob. 9DYU Ch. 12 - Prob. 10DYU

Return on equity (ROE)

Concept explainers

Videos

To determine: Return on equity (ROE)

Explanation of Solution

To determine: Return on assets (ROA).

Explanation of Solution

To determine: Asset utilization.

Explanation of Solution

To determine: Equity multiplier.

Explanation of Solution

To determine: Profit margin.

Explanation of Solution

To determine: Interest expense ratio.

Explanation of Solution

To determine: Provision for loan loss ratio.

Explanation of Solution

To determine: Non-interest expense ratio.

Explanation of Solution

To determine: Tax ratio.

Explanation of Solution

To determine: Overhead efficiency.

Explanation of Solution

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Chapter 12 Solutions