TJ's has annual sales of $813,200, total debt of $171,000, total equity of $396,000, and a profit margin of 5.78 percent. What is the return on assets?
A) 8.29 percent
B) 6.48 percent
C) 9.94 percent
D) 7.78 percent
E) 8.02 percent

Question

Quizplus · Accepted Answer

Return on assets (ROA) is calculated as net income divided by total assets. First, we need to calculate net income:

Net income = Sales x Profit Margin 
Net income = $813,200 x 5.78% 
Net income = $47,014.16

Then, we can calculate total assets:

Total assets = Total debt + Total equity 
Total assets = $171,000 + $396,000 
Total assets = $567,000

Finally, we can calculate ROA:

ROA = Net income / Total assets 
ROA = $47,014.16 / $567,000 
ROA = 0.0829 or 8.29%

Therefore, the best choice is A.

TJ's Has Annual Sales of $813,200, Total Debt of $171,000