The operating profit after tax of Calculus Ltd is $10 million and sales are $100 million. Asset turnover is 1.25 times p.a. What is Calculus Ltd's ROA?

Question

Quizplus · Accepted Answer

ROA (Return on Assets) = Operating profit after tax / Average Total Assets
Asset turnover = Sales / Average Total Assets
We can calculate Average Total Assets using the formula: 
Average Total Assets = (Beginning Total Assets + Ending Total Assets) / 2
Let's assume Beginning Total Assets = Ending Total Assets, for simplicity. 
Then, Asset turnover = Sales / Total Assets 
1.25 = 100 / Total Assets 
Total Assets = 80 
ROA = 10 / 80 
ROA = 0.125 or 12.5% 
Therefore, the correct answer is B.

The Operating Profit After Tax of Calculus Ltd Is $10