A firm has a return on equity of 23 percent. The total asset turnover is 2.2 and the profit margin is 6 percent. The total equity is $5,600. What is the net income?

Answer 1

To find the net income, we can use the return on equity (ROE) formula:

\[ ROE = \frac{\text{Net Income}}{\text{Total Equity}} \]

Given:

• Return on Equity (ROE) = 23% = 0.23
• Total Equity = $5,600

We can rearrange the ROE formula to solve for net income:

\[ \text{Net Income} = ROE \times \text{Total Equity} \]

Substituting the known values:

\[ \text{Net Income} = 0.23 \times 5600 \]

Calculating this gives:

\[ \text{Net Income} = 1288 \]

Thus, the net income is $1,288.