Profitability and Asset Management Ratios You Are Thinking of Investing

question 107

Multiple Choice

Profitability and Asset Management Ratios You are thinking of investing in Tikki's Torches,Inc.You have only the following information on the firm at year-end 2011: net income = $500,000,total debt = $12 million,and debt ratio = 40 percent.What is Tikki's ROE for 2011?

• A)1.67 percent
• B)2.78 percent
• C)4.17 percent
• D)10.42 percent

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Definitions:

Equity Method

An accounting technique used to assess the profits earned by investments in other companies, reflecting the profit in proportion to shares held.

Comprehensive Income

The total change in equity for a reporting period other than transactions from owners, encompassing all realized and unrealized gains and losses.

Cost Method

An accounting method used for investments, where the investment is recorded at cost and adjustments are made only for dividends received and permanent declines in value.

Retained Earnings

The portion of a company's profits that is kept or retained and not paid out as dividends to shareholders, often used for reinvestment in the business or to pay down debt.