Starbucks reports net income for 2018 of $4,518.3 million. Its stockholders’ equity is $5,450.1 million and $1,169.5 million for 2017 and 2018, respectively.
a. Compute its return on equity for 2018.
b. Starbucks repurchased over $7,208.7 million of its common stock in 2018. Did this repurchase increase or decrease Starbucks’ ROE?
If Starbucks had not repurchased common stock in 2018, what would ROE have been?
Answer:
Please note the solution
a. Return on equity = Net Income / Shareholders' Equity
= 4518.3 Million / 1169.50 Million
= 386.35% Answer
b. Due to repurchase Starbuck's ROE has increased. It is because net income for the year 2018 is divided by the lower amount of the Shareholders' Equity, thus making it higher.
c. If the shareholder's equity has not been repurchased then,
ROE = 4518.3 / 5450.1
= 82.90% Answer
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