A bakery earned a net profit of $32,175 and reports total owners' equity of $78,750. What is its return on equity?

1. Return on equity divides net profit by total owners' equity. 2. Net profit is $32,175. 3. Total owners' equity is $78,750. 4. Divide: $32,175 divided by $78,750 equals 0.409. 5. As a percentage that is 40.9 percent. 6. On the surface 40.9 percent looks strong, but the level of risk in the business and the return on equity of rival firms must be weighed too. 7. The higher the risk, the greater the return on equity investors look for. 8. Answering 89.1 percent divides total liabilities by equity, which is the debt-to-equity ratio and says nothing about profit. _Source: OpenStax Introduction to Business (CC BY 4.0), Ch 14 "Using Financial Information and Accounting", section 14.7 Analyzing Financial Statements_