CFA CFA Level 1 FRA – Calculation of Equity

# FRA – Calculation of Equity

• Author
Posts
• Snippy
Participant
• CFA Level 2
1

Okay, this might be quite simple for most of you, but i just couldn’t get the calculation of equity from the given values in the problem, for the calculation of ROE.

So shoot away the solution please ðŸ™‚

• Snippy
Participant
• CFA Level 2
5

Ah, sorry for the late response guys. I put this up and went to sleep ðŸ™‚

Actually, i was looking to get just the calculation of equity. Because finding ROE wasn’t my concern here, once i know the value of equity, i could calculate the rest. So thanks @christine, the value of equity is (1050 + 459) making it 1519. I just couldn’t figure out how to arrive at that value (stupid me :S). So, the answer is 944/1519 is 62.15%.

Thanks everyone!

• 4

1050 being the average retained earnings, 469 being the average common stock. I might have done the math wrong.

• vincentt
Participant
• CFA Level 3
4

@sophie same pic u posted !! :))

• 3

…I am getting a really weird answer…67.4% o.O
Now this is gonna bother me

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and what are the available choices of answer?

• 3

I dunno – isn’t it [ 944/ (1050+469) ] ?

• 3

@sidmenon

I did 944/ ((1400+1638)/2) = 0.62

• Snippy
Participant
• CFA Level 2
3

Also, last night i tried doing questions for Income Tax under FRA after revising from the Elan guide, and man, i did not expect getting killed. For some reason, i just couldn’t get anything into my head. IMO, i find the last sections of FRA, i.e., Inventories, Income Taxes, Long-lived Assets and Non-current liabilities the toughest.

• 2

Yeah thats what I would have done. Giving 2 years of balance sheet data is usually the give away for needing to use an average for the balance sheet item in a formula. Schweser can be a bit inconsistent with it though…

• 2

@SidMenon, what were the avaialble options by the way. Do you have 62% as well as 57.x%? Then I am in trouble. ðŸ™‚

• Snippy
Participant
• CFA Level 2
2

Thanks Sophie ðŸ™‚ Yeah, that’s what i thought too. I’m going to throw tons of Qs at this forum! Be ready! ðŸ˜›

• 1

@Swift, I think ROE by definition should go with average equity to make sense as a ratio anyway…

• 1

No worries @sidmenon! I’m with the view that you actually learn the most in the last month, because that’s when your knowledge is properly tested. It’ll get easier over next few weeks. Any questions, you know where to come to discuss! There’s a lot of brainy and friendly people that’ll help you out. You’re gonna get past this!

• 1

@sidmenon

• 0

Yup, when I get good questions, that’s me ðŸ˜›