Chapter 2, Problem 18PROB

Summary Introduction

FDS’s total assets are $100,000, return on assets is 3%, and return on equity is 5%. Calculate the net income and portion of total assets finance with debt.

Return on assets is used to measure how much the firm profitable with related to firm’s total assets.

$\text{Return on assets}=\frac{\text{Net income}}{\text{Total assets}}$

Return on equity is used to measure the financial performance that the owners of common stock of a company receive on their shareholdings.

$\text{Return on equity}=\frac{\text{Net income}}{\text{Equity}}$