What is the return on the stockholders' equity on this problem?

Question

Neon Light Company has $1,000,000 in assets and $600,000 of debt. It reports net income of $100,000.

Answer 1

If Assets = $1m and Liabilities = $600k, then Stockholders' Equity = $400k

Return on Equity = Net Earnings/Total Stockholders' Equity

so RoE = 100,000/400,000 = 0.25

Return on Equity basically shows how many dollars of earnings were generated per dollar of equity the stockholders provided. So, every dollar of stockholders' equity generated $0.25 of net income.