__Solve the following accounting problem related to return on equity:__
A manufacturing company has
a profit margin of 3% and an equity multiple of 2.0.

For the current year, the manufacturing company has sales of $100 million and it has total assets of $50 Million. What is the company's Return on Equity (ROE)? Use the following accounting information and accounting ratios to solve the problem.

**Answer to Accounting ROE Problem:**

**Formula for Return on Equity (ROE) is : Return on Equity = Net Income / Shareholder’s Equity**

Total Assets = $50 million

Net
Profit After Tax = Missing

Total
Shareholders’ Equity- Missing

To compute return on equity for this company, it is essential to find out shareholder’s equity and total net profit:

**Profit Margin Equation = Net Income/ Sales = Net income / Sales**

.03 = Net
Income / 100 Million

Net
Income = .03 X 100 Million = $3 Million

Furthermore, the company
has an Equity Multiplier of 2 which means it has $2 of dollar aginst every $1 of equity in common stock.

**Calculate Equity Ratio for the Company:**

Equity
Ratio = 1 / Equity Multiplier = 1 / 2 =
0.50 = 50%

Calculate Stockholder
equity = $50 Million X 0.50 = $25 Million

Calculate Return
on Equity (ROE) = Net Income / Shareholder’s Equity

= $3 Million / $25 Million

=
0.12 = 12%