Category

Prior year

Current year

Accounts payable

41,400

45,000

Accounts receivable

115,200

122,400

Accruals

16,200

13,500

Additional paid in capital

200,000

216,660

Cash

???

???

Common Stock @ par value

37,600

42,000

COGS

131,400

173,182.00

Depreciation expense

21,600

23,172.00

Interest expense

16,200

16,035.00

Inventories

111,600

115,200

Long-term debt

135,000

138,765.00

Net fixed assets

376,664.00

399,600

Notes payable

59,400

64,800

Operating expenses (excl. depr.)

50,400

61,196.00

Retained earnings

122,400

136,800

Sales

255,600

336,987.00

Taxes

9,900

18,795.00

What is the current year's return on equity (ROE)?

To calculate the Return on Equity (ROE) for the current year, we need to use the formula:

\[
\text{ROE} = \frac{\text{Net Income}}{\text{Average Shareholder's Equity}}
\]

### Step 1: Calculate Net Income
Net Income can be calculated using the formula:

\[
\text{Net Income} = \text{Sales} - \text{COGS} - \text{Operating Expenses} - \text{Depreciation Expense} - \text{Interest Expense} - \text{Taxes}
\]

Let's calculate it using the provided dataTo calculate the Return on Equity (ROE) for the current year, we need to use the formula:

\[
\text{ROE} = \frac{\text{Net Income}}{\text{Average Shareholder's Equity}}
\]

### Step 1: Calculate Net Income
Net Income can be calculated using the formula:

\[
\text{Net Income} = \text{Sales} - \text{COGS} - \text{Operating Expenses} - \text{Depreciation Expense} - \text{Interest Expense} - \text{Taxes}
\]

Let's calculate it using the provided 

- **Sales**: 336,987
- **COGS**: 173,182
- **Operating Expenses (excluding depreciation)**: 61,196
- **Depreciation Expense**: 23,172
- **Interest Expense**: 16,035
- **Taxes**: 18,795

\[
\text{Net Income} = 336,987 - 173,182 - 61,196 - 23,172 - 16,035 - 18,795
\]

\[
\text{Net Income} = 44,607
\]

### Step 2: Calculate Average Shareholder's Equity
Shareholder's Equity is calculated as the sum of Common Stock, Additional Paid-in Capital, and Retained Earnings.

\[
\text{Shareholder's Equity} = \text{Common Stock} + \text{Additional Paid-in Capital} + \text{Retained Earnings}
\]

For the **current year**:

\[
\text{Current Year Shareholder's Equity} = 42,000 + 216,660 + 136,800 = 395,460
\]

For the **prior year**:

\[
\text{Prior Year Shareholder's Equity} = 37,600 + 200,000 + 122,400 = 360,000
\]

The **average** shareholder's equity is calculated as:

\[
\text{Average Shareholder's Equity} = \frac{360,000 + 395,460}{2} = 377,730
\]

### Step 3: Calculate ROE
\[
\text{ROE} = \frac{44,607}{377,730} \approx 0.118
\]

### Final Result
The Return on Equity (ROE) for the current year is approximately **11.8%**.

Do you have any questions or need further details? Here are some related questions:

1. How does ROE help in evaluating a company's performance?
2. What impact do retained earnings have on shareholder's equity?
3. How would an increase in debt affect the ROE?
4. What is the significance of net income in financial analysis?
5. How can depreciation expenses influence net income and ROE?

**Tip:** A higher ROE generally indicates more efficient use of equity to generate profits.

What is the current year's return on equity (ROE)?

Calculate the current year's Return on Equity (ROE) using provided financial data. This problem involves calculating Net Income, Shareholder's Equity, and using the ROE formula. It covers key finance concepts including financial ratios and net income. Suitable for college-level finance students.

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