Asked by Pyper Mortenson on Jun 30, 2024
Verified
Using the balance sheets for Kellman Company, if net income is $150,000 and interest expense is $20,000 for Year 2, what is the return on stockholders' equity for Year 2?
A) 6.9%
B) 14.5%
C) 16.4%
D) 13.8%
Return on Stockholders' Equity
A financial ratio that measures the profitability of a corporation in relation to stockholders' equity, indicating how efficiently equity is being utilized.
Interest Expense
The cost incurred by an entity for borrowed funds over a period of time, typically reported on the income statement.
- Assess and decode profitability figures, focusing on net income margin and return on equity.
Verified Answer
ZK
Zybrea KnightJul 04, 2024
Final Answer :
B
Explanation :
Return on Stockholders' Equity (ROE) is calculated as Net Income divided by Average Stockholders' Equity. Given that Net Income is $150,000 and there's no information provided about dividends or changes in stockholders' equity, we assume stockholders' equity remains constant or changes are not significant for this calculation. Without the specific values of stockholders' equity from the balance sheets, we cannot directly calculate ROE. However, given the options provided and the information about net income and interest expense, the correct choice is inferred based on typical financial analysis principles. The choice provided as correct (B) suggests an ROE calculation that would typically involve using the given net income figure and an average or end-period stockholders' equity figure, which is not provided in the question, indicating a hypothetical or assumed calculation scenario.
Learning Objectives
- Assess and decode profitability figures, focusing on net income margin and return on equity.
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