What is the return on assets (ROA) for a firm that has a debt ratio of 0.65, a return on sales of 6.5%, sales of $740,000, and a total asset turnover of 4?

Question

Quizplus · Accepted Answer

Return on Assets (ROA) is calculated as (Net Income / Total Assets). Given the return on sales (Net Income/Sales) is 6.5%, and sales are $740,000, Net Income is 0.065 * $740,000 = $48,100. Total Asset Turnover is Sales/Total Assets, so Total Assets = Sales / Total Asset Turnover = $740,000 / 4 = $185,000. Therefore, ROA = $48,100 / $185,000 = 0.26 or 26.0%.

What Is the Return on Assets (ROA) for a Firm