The balance sheet of Tech Track reports total assets of $400,000 and $500,000 at the beginning and end of the year,respectively.Sales revenues are $1.1 million ($0.8 million in the previous year),net income is $40,000,and net cash flows from operating activities are $50,000.How does Tech Track's cash return on assets compare to the industry average of 10%?

Question

Quizplus · Accepted Answer

Cash return on assets is calculated by dividing net cash flows from operating activities by average total assets [(beginning total assets + ending total assets)/2]. 
Tech Track's cash return on assets = $50,000/[(400,000+500,000)/2] = 0.125 or 12.5% 
This is higher than the industry average of 10%, indicating that Tech Track is performing better in terms of generating cash from its assets.

The Balance Sheet of Tech Track Reports Total Assets of $400,000