Use the following information to answer this question. Windswept, Inc. 2010 Inco

Question

Use the following information to answer this question. Windswept, Inc. 2010 Income Statement ($ in millions) Net sales $ 9,100 Less: Cost of goods sold 7,500 Less: Depreciation 425 Earnings before interest and taxes $ 1,175 Less: Interest paid 90 Taxable Income $ 1,085 Less: Taxes 380 Net income $ 705 Windswept, Inc. 2009 and 2010 Balance Sheets ($ in millions) 2009 2010 2009 2010 Cash $ 190 $ 225 Accounts payable $ 1,300 $ 1,530 Accounts rec. 1,000 900 Long-term debt 1,040 1,305 Inventory 1,600 1,610 Common stock $ 3,290 $ 2,940 Total $ 2,790 $ 2,735 Retained earnings 500 750 Net fixed assets 3,340 3,790 Total assets $ 6,130 $ 6,525 Total liab. & equity $ 6,130 $ 6,525

What is the return on equity for 2010?

Explanation / Answer

solution:

Return on equity for 2010 = Net income/ stockholders' equity

= $705million/(6525-1530-1305)million

= $705million/$3,690million = 19.11%(rounded off to 2 decimal places)

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