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    Return on Equity and Asset Management

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    My company is unhappy with our operations, and we believe that our asset management can be improved. Our management team points out that the average total turnover ratio in our industry is 3.00X. My management team does not want to be average and we want a total asset turnover ratio of 4.00X which would put us inline with the industry leaders. If we succeed in increasing our total asset turnover ratio without harming our other numbers, what would our new ROE be? Assume this goal will be achieved without affecting other ratios.

    Current assets: 3,000,000
    Net fixed assets: 12,000,000
    Total Assets: 15,000,000

    Total Debt 6,000,000
    Total Equity: 9,000,000
    Total Debt and equity: 15,000,000

    We generated $1,500,000 of net income on $35,000,000 in sales

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    Solution Summary

    The answer contains the computation of return on equity.