Bedrock Insurance Company has assets of $600 million, liabilities of $500 million, and net income of $5 million. What is ROE?

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Multiple Choice

Bedrock Insurance Company has assets of $600 million, liabilities of $500 million, and net income of $5 million. What is ROE?

Return on equity shows how much profit a company generates from the owners’ capital. It’s calculated as net income divided by shareholders’ equity. Here, shareholders’ equity is the difference between assets and liabilities: 600 million minus 500 million equals 100 million. With net income of 5 million, ROE = 5 / 100 = 0.05, or 5%. So the performance relative to owner funds is 5% for this period.

Return on equity shows how much profit a company generates from the owners’ capital. It’s calculated as net income divided by shareholders’ equity. Here, shareholders’ equity is the difference between assets and liabilities: 600 million minus 500 million equals 100 million. With net income of 5 million, ROE = 5 / 100 = 0.05, or 5%. So the performance relative to owner funds is 5% for this period.

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