Answer to Question #238572 in Economics for Kay

Question #238572

Blooms Ltd. management recently reported adhering to a target capital structure. The company has the following target: a debt ratio of 50%. The book debt ratio is however 20% on total assets of R1 million. If the company recently had net profits of R50 000, what was is the company’s ROE?

Expert's answer

The company’s ROE is:

ROE = Net income/Equity = 50,000/(0.8×1,000,000)×100% = 6.25%.

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