If equity is $2 million and total revenue is $1.3 million, then ROE is __________.
incalculable without net profit data
The formula for calculating Return on Equity (ROE) is:
ROE = Net Income / Equity
Since total revenue is provided instead of net income, we cannot directly calculate ROE with the given information.
However, we can make an assumption that the profit margin is constant and use it to estimate net income. The profit margin is:
Profit Margin = Net Income / Total Revenue
We can rearrange this formula to get:
Net Income = Profit Margin * Total Revenue
Let’s assume a profit margin of 10% (0.1) for this scenario. Then, the estimated net income would be:
Net Income = 0.1 * $1.3 million = $130,000
Now we can use the ROE formula:
ROE = Net Income / Equity
ROE = $130,000 / $2 million
ROE = 0.065 or 6.5%
Therefore, the estimated ROE for this scenario is 6.5%.
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