[EmZ]

AH HELP!

Does anyone know if the formula for return on equity is:
income/ average equity
or
average income/ average equity
?

The Becker book says it’s income/ average equity, but I just did a Ninja sim and according to Ninja its average income/ average equity.
Specifically looking at Sim 52 if anyone is studying this stuff as well 🙂

Thanks everyone!

AUD - 79
BEC - 83
FAR - 77
REG - 80

-Emily

[fblessed777]

@EmZ, I would go for Net Income/Average Equity.

[CPYay]

I haven't heard of avg/avg. ROE is typically calculated as Income / Avg equity, where the income is from a specific period and the average equity is from two specific points in time.

Do you have the wording from the Ninja sim? Did it have an answer for Income/Avg Equity that it deemed incorrect?

AUD - 92
BEC - 84
FAR - 89
REG - 84

Mailed application! Hoping to be licensed by year-end!

[EmZ]

Thanks all! Looking back, it's actually a bit different from what I presented (but it's still wrong, I think!)…

The answer to the sim shows the following:

“Return on equity = Net income less preferred dividends ÷ Average common stockholders' equity

No preferred dividends were paid.
Net income for Year 1 = $24,400,000
Stockholders' equity for Year 1 = $86,500,000

$24,400,000 ÷ $86,500,000 = 28.21% for Year 1

Net income for Year 2 = $13,815,000
Stockholders' equity for Year 2 = $100,315,000

$13,815,000 ÷ $100,315,000 = 13.77% for Year 2”

SO I agree with the formula the answer gives… but then it goes ahead to calculate each year separately (income/equity for each year), and just gives it individually for both years- instead of doing income in year 2/ average equity from years 1 and 2…

confused!!!

AUD - 79
BEC - 83
FAR - 77
REG - 80

-Emily

[Ana]

It's income/ average equity

BEC - 78
AUD - 75
REG - 64, 77
FAR - 73, 73, 73, 82
Ethics: 74, 84, 98
Finally done after 23 months.

[Author]

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