For the current year, Company A had sales of $400,000, net income of $290,000 an
ID: 2392378 • Letter: F
Question
For the current year, Company A had sales of $400,000, net income of $290,000 and average common Stockholders Equity of $940,000. During the same year, Company B had sales of $240,000, net income of $170,000 and average common Stockholders Equity of $430,000. Which of the following statements is TRUE regarding this situation? 2 9 A has a better retun on equity, $290,000 compared to Company B's $170,000 O A. Company A has a better return on equity,$290,000 compared O B. Company A has a better return on equity, $400,000 compared to Company B's $240,000 O c. company B has a better return on equity. 70.83% compared to Company A's 72.5%, 0 D. Company B has a better return on equity. 39.53% compared to Company A's 30 85%Explanation / Answer
Answer is D. Company B has better return on Equity 39.53%, compared to Company A 30.85% Explanation: Company-A: Sales 400000 Net Income 290000 Average Equity 940000 Return on Equity: Net income / Average equity *100 290000 /940000 *100 = 30.85% Company-B Sales 240000 Net Income 170000 Average Equity 430000 Return on Equity: Net income / Average equity *100 170000 /430000*100 = 39.53%