Use the following information to answer this question. Windswept, Inc. 2017 Inco
ID: 2614415 • Letter: U
Question
Use the following information to answer this question. Windswept, Inc. 2017 Income Statement $ In millions) Net sales Cost of goods sold Depreclation Earnings before interest and taxes Interest paid Taxable Income Taxes Net income $ 9,300 7,600 435 $ 1,265 94 $1,171 410 $ 761 Windswept, Inc. 2016 and 2017 Balance Sheets $ in millions) 2016 $210 $ 245 Accounts payable 2017 2016 2017 Cash Accounts rec. Inventory Total Net fixed assets Total assets $ 1,460 $ 1,550 1,325 3,220 2,960 770 870 Long-term debt 1,640 Common stock 1,000 970 1,640 $2,820 2,755 Retained earnings 520 3,380 3,850 6,200 6,605 Total liab. & equity 6,200 6,605 What is the return on equity for 2017?Explanation / Answer
Return on Equity = Net Income/Average Shareholders' Equity
In 2017, Shareholders' Equity = $2,960 + $770 = $3730
In 2016, Shareholders' Equity = $3,220 + $520 = $3740
Average Shareholders' Equity = (3730 + 3740)/2 = $3,735
Net Income = 761
ROE = 761/3,735 = 19.57% --> Answer
In some text, ROE is mentioned as Net Income/Shareholders' Equity which is not entirely correct. In real world, Average Shareholders' Equity is used. If we used this formula, ROE = 19.59%